Asymmetric Information, Perceived Risk and Trading Patterns: The Options Market

Asymmetric information models are tested using options implied volatility and volume of trade in eight international markets. We explore the relations between the trading break time duration, the quality of public information, the discretion of options liquidity traders to postpone their trades, and the interday and intraday implied volatility and volume of trade in options. Although asymmetric information is generally related to the underline asset, we find that it strongly affects the investment strategies adopted by the various options traders which, in turn, affect implied volatility and options’ volume of trade. The current analysis sheds new light on those strategies and their interrelations with the stock market. The introduction of futures on implied volatility in 2004 is also explored. JEL Classification Numbers: D82, G12, G14