Working Papers

The Intertwined Price Discovery Processes in Equity and Option Markets

This paper investigates the linkage between the price discovery processes of the underlying equity and option markets following option transactions. Price impacts in these two markets are heterogeneous and connected through implied volatility (IV). I document that option trades are associated with significant changes in their own implied volatility. Under the constant IV assumption commonly used in existing literature, the option price impact is underestimated, while the underlying price impact is overestimated. In-the-money and put option trades are associated with larger IV movements, as these contracts are more often traded by hedgers rather than price-informative investors.

Presented at: Northern Finance Association (PhD poster), 2025; Midwest Finance Association, 2025; Sydney Banking and Financial Stability Conference, 2024; 13th International Conference on Futures and Other Derivatives, 2024; Financial Management Association, 2024; Queen's University, 2023.

Awards: FMA 2024 Best Paper Award Semifinalist (Market Microstructure)