Differences of Opinion of Public Information and Speculative Trading in Stocks and Options

Posted: 3 Jan 2009

See all articles by H. Henry Cao

H. Henry Cao

affiliation not provided to SSRN

Hui Ou-Yang

Cheung Kong Graduate School of Business

Date Written: January 2009

Abstract

We analyze the effects of differences of opinion on the dynamics of trading volume in stocks and options. We find that disagreements about the mean of the current- and next-period public information lead to trading in stocks in the current period but have no effect on options trading. Without options, we find that disagreements about the precision of all past and current public information affect trading in stocks in the current period. With options, only disagreements about the precisions of the next- and current-period information affect stocks and options trading in the current period. Our results suggest that options trading is concentrated around information events that are likely to cause disagreements among investors, whereas trading in stocks may be diffusive over many periods.

Keywords: G1, G11, G12

Suggested Citation

Cao, H. Henry and Ou-Yang, Hui, Differences of Opinion of Public Information and Speculative Trading in Stocks and Options (January 2009). The Review of Financial Studies, Vol. 22, Issue 1, pp. 299-335, 2009, Available at SSRN: https://ssrn.com/abstract=1320555 or http://dx.doi.org/hhn020

H. Henry Cao (Contact Author)

affiliation not provided to SSRN

No Address Available

Hui Ou-Yang

Cheung Kong Graduate School of Business ( email )

Hong Kong
China
852-5199-6227 (Phone)

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