Finance Seminar（2018-12）

Topic: Cost Reduction, Informational Efficiency, and Prices of Options

Time: Tuesday, 24 April, 10:00-11:30

Location: Room K01, Guanghua Hotel

Abstract:

This paper documents four findings in the option market based on two stages of decimalization where switching control and treatment stocks is possible. First, uninformed traders are more cost sensitive than informed traders. Second, the paper proves and verifies that when uninformed traders are more cost sensitive, trading cost reduction causes slower response of price to information. Those findings are contrary to the evidences in the stock market. Third, decimalization narrows bid ask spread, increases volume, and deepens depth, especially for options requiring frequent hedging re-balancing in the stock market. Finally, option prices become more expensive after decimalization.

Introduction:

Sophie Xiaoyan Ni received Ph.D. in finance from University of Illinois of Urbana Champaign. Her research area is asset pricing and derivative securities. Her work has been published at Journal of Finance, Journal of Financial Economics, Review of Financial Studies and Management Science. Her papers are in the finalist of Smith Breeden Prize for the distinguished asset pricing paper in Journal of Finance, covered by New York Times or Wall Street Journal. Ms. Ni taught at Hong Kong University of Science and Technology for 10 years. Now she teaches at Hong Kong Baptist University.

Your participation is warmly welcomed!