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Rev Fin 2002; 15:1049-1075
© 2002 the Society for Financial Studies

The Informational Role of Stock and Option Volume

Kalok Chan
Hong Kong University of Science and Technology

Y. Peter Chung
University of California, Riverside

Wai-Ming Fong
Chinese University of Hong Kong

Address correspondence to Kalok Chan, Department of Finance, Hong Kong University of Science and Technology, Clearwater Bay, Kowloon, Hong Kong, or e-mail: kachan{at}usthk.ust.hk.

Abstract

This article analyzes the intraday interdependence of order flows and price movements for actively traded NYSE stocks and their Chicago Board Options Exchange (CBOE)-traded options. Stock net trade volume (buyer-initiated volume minus seller-initiated volume) has strong predictive ability for stock and option quote revisions, but option net trade volume has no incremental predictive ability. This suggests that informed investors initiate trades in the stock market but not in the option market. On the other hand, both stock and option quote revisions have predictive ability for each other. Thus, while information in the stock market is contained in both quote revisions and trades, information in the option market is contained only in quote revisions.


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Home page
 REV FINANC STUDHome page
J. Pan and A. M. Poteshman
The Information in Option Volume for Future Stock Prices
Rev. Financ. Stud., September 1, 2006; 19(3): 871 - 908.
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