Information Arrival in Financial Markets

Job Market Paper

This article introduces a new high-frequency analysis of six years of data for options written on the S&P 500 and traded on the Chicago Board of Exchange. I quantify in real-time the information contained in the probability measure implied by option prices, using concepts developed in information theory. Here information is analogous to a reduction in uncertainty surrounding the future price of the underlying security. A simple nonparametric estimator allows us to measure the amount of information gained as an option approaches maturity. I then test for jumps in the expectation of said future price. I find the intraday flow of information in a large and important market is not continuous, and often increases in discrete intervals. This fact is used to identify events in which a large amount of information is revealed to investors.

JEL Classifations: C14, G13, G14.

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Keywords: High-frequency data, options pricing, structural-breaks, jumps, information & entropy