Emerging derivatives markets may be less efficient in incorporating new information because they experience low liquidity. Focusing on the function of price discovery of new stock index derivatives gives us a complete picture of the informational efficiency of these markets. This study investigates the lead-lag relationships between the cash and the option markets on Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) by using 15-minute intraday data. In contrast to prior research, we examine the effect of the intrinsic value of options and the types of options on the
lead-lag relationships between the stock and the option markets. The empirical results indicate that the cash index leads at-the-money call options and out-of-the-money call options by up to 15 minutes. There is an obvious difference between the speed of price reaction to new information in TAIEX options of different intrinsic values compared to the reaction time of other types of options.
Relation:
Asian Journal of Management and Humanity Sciences 1(3):422-433
