We would like to congratulate UTS Finance academics Dr Vinay Patel, Professor Talis Putnins and Professor David Michayluk and their co-author Dr Sean Foley for being awarded the 2020 Phillip Brown Prize. The award was for their publication in the Journal of Financial Markets titled “Price Discovery in Stock and Options Markets”. This is the second time Talis has won the Philip Brown Prize, having also won the award in 2015. The paper investigates the role of options in price discovery. It finds the role is significantly larger than previously thought. The prize is awarded each year for the best paper published using data sourced from the Securities Industry Research Centre of Asia-Pacific (SIRCA).
Using new empirical measures of information leadership, the paper finds that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options playing a more important role in price discovery around information events. Using unique data on traders prosecuted for insider trading, the authors find that they often choose to trade in options, attracted by their leverage, and when they do the options share of price discovery is higher. The results help interpret conflicting findings in the existing literature.