Has the introduction of S&P 500 ETF options led to improvements in price discovery of SPDRs?

Abstract

This study sets out to investigate trading in Standard and Poor's Depository Receipt Trust Series I (SPDR) options and the impact on the price‐discovery process of SPDRs. The empirical results reveal a significant rise in liquidity within the SPDR market following the introduction of SPDR options. Furthermore, the results also show that the introduction of SPDR options has led to a significant improvement in the information share of SPDRs, and that the contribution of SPDRs to price discovery has become very close to that of E‐mini index futures. These findings imply that developments in the derivatives market can lead to improvements in market quality, including the level of liquidity and price discovery of the underlying securities. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:683–711, 2012

Price discovery among SSE 50 Index‐based spot, futures, and options markets

“…Finally, this paper explores factors that affect the time variation in price discovery of the derivatives. The results show that in the options market, the price discovery role is positively correlated with the trading volume and negatively correlated with the return volatility, which is consistent with the literature (Chakravarty et al, ; Chen & Chung, ). In other words, more trading activities and smaller uncertainty are conducive to better price discovery.…”

“…Specifically, we regress IS and CFW on the ratio of daily trading volume of futures to that of options (), the ratio of daily return standard deviation of futures to that of options (), and the absolute value of log price difference between futures and options (). Chen and Chung () and Chakravarty et al () find that the trading volume and market volatility are the determinant of the price discovery in a market. The absolute value of the log basis is the gap between the two prices and represents the arbitrage opportunities among the markets.…”

“…Most of recent studies attempt to estimate time‐varying price discovery measures by employing a daily VECM. For more details, see Chen and Chung (), Chakravarty et al, (), Hasbrouck () among several others.…”

BitMEX bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness

“…This finding indicates that the speed with which new information is incorporated into the bitcoin price is more rapid in BitMEX than in these other exchanges; that is, the BitMEX perpetual swap plays the price leadership role. In addition, we document that the strength of price discovery in BitMEX is positively (negatively) associated with the relative bid–ask spread (trading volume) of the spot markets, consistent with findings in equity derivatives markets (Chakravarty, Gulen, & Mayhew, ; Chen & Chung, ). We also find that the magnitude of price spreads between exchanges also affects the role of BitMEX in price discovery.…”

Implied Volatility Dynamics Among Exchange-Traded Funds and Their Largest Component Stocks

“…Hegde and McDermott [2004], Yu [2005], and Madura and Ngo [2008] find that the introduction of ETFs improves liquidity in their underlying stocks. Chen and Chung [2012] find that liquidity and price discovery improve after the introduction of SPY options. This article seeks to answer a different research question, however.…”