Price Discovery during Parallel Stocks and Options Preopening: Information Distortion and Hints of Manipulation

41 Pages Posted: 15 May 2014 Last revised: 9 Feb 2018

See all articles by Shmuel Hauser

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management; Government of the State of Israel - Israel Securities Authority

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Orit Milo

affiliation not provided to SSRN

Date Written: August 24, 2014

Abstract

Many stock exchanges implement advanced procedures toward preventing manipulative orders from distorting informative price discovery during preopening sessions. Often, such sessions involve both the stock and options markets, with book-based indicative stock prices and traded index options, whose underlying is the indicative index. Significant differences between the options-implied and the indicative indexes may point at either differences in informational efficiencies, or that one of the markets is manipulated. Using a unique dataset, we explore informational (prices) and transactional (liquidity) efficiencies. We find significant price and illiquidity patterns similar to those predicted by theoretical models of manipulation, but also informational inefficiencies.

Keywords: Price discovery; Manipulation; Preopening; Liquidity

JEL Classification: D84, G12, G13, G14

Suggested Citation

Hauser, Shmuel and Kedar-Levy, Haim and Milo, Orit, Price Discovery during Parallel Stocks and Options Preopening: Information Distortion and Hints of Manipulation (August 24, 2014). Available at SSRN: https://ssrn.com/abstract=2437286 or http://dx.doi.org/10.2139/ssrn.2437286

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
+972 2 651 3939 (Phone)
+972 7 6472896 (Fax)

Government of the State of Israel - Israel Securities Authority

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Haim Kedar-Levy

Ben Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva 84105
Israel
(972) 8 6472569 (Phone)
(972) 8 6477697 (Fax)

Orit Milo (Contact Author)

affiliation not provided to SSRN

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