Volatility Discovery Across Stock Limit Order Book and Options Markets
Journal of Futures Markets, Forthcoming
46 Pages Posted: 14 Sep 2013
Date Written: September 12, 2013
Abstract
Foucault (1999) provides a theoretical basis for how stock price volatility influences the aggressiveness of limit order traders. I investigate volatility discovery across stock limit order book and options markets using a broad panel of NYSE-listed stocks from November 2007 to January 2008 and find strong evidence that, as predicted, the aggressiveness of the stock limit order book and option volatility trading Granger-cause each other. Further, I find that the aggressiveness of the stock limit order book and option volatility trading are inversely related, which is both statistically and economically significant.
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