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How Market Prices React to Information: Evidence from Binary Options Markets

Author

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  • Romain Gauriot Author e-mail: romain.gauriot@nyu.edu
  • Lionel Page Author e-mail: lionel.page@uts.edu.au

    (Division of Social Science)

Abstract

Using a natural experiment setting on binary options markets, we compare the evolution of market prices in situations where the occurrence or not of information shocks depends on knife-edge situations and where shocks can be considered as good as random. We find that most of the time, prices react surprisingly efficiently to information shocks with no evidence of abnormal average returns. We nonetheless find evidence of under-reaction in specific situations where information shocks are large.

Suggested Citation

  • Romain Gauriot Author e-mail: romain.gauriot@nyu.edu & Lionel Page Author e-mail: lionel.page@uts.edu.au, 2021. "How Market Prices React to Information: Evidence from Binary Options Markets," Working Papers 20200058, New York University Abu Dhabi, Department of Social Science, revised Oct 2021.
    • Handle: RePEc:nad:wpaper:20200058
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    File URL: https://nyuad.nyu.edu/content/dam/nyuad/academics/divisions/social-science/working-papers/2021/0058(2).pdf
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