Associate Professor Xing Huang, Olin Business School, Washington University in St. Louis

"Some Anonymous Options Trades Are More Equal than Others (with Philippe Jorion and Chris Schwarz)"
Wednesday, 30 October 2024. 15:00-16:30
Room 430, James McCune Smith Learning Hub

Abstract

We compare retail option trade execution by placing simultaneous market orders across six brokers. Although option trades are all anonymously executed on exchanges and therefore should be treated equally, we find that execution prices vary significantly: the average round-trip execution cost ranges from 0% to 7% across brokers. Wholesalers create differential pricing by not only systematically varying execution methods, but also the pricing within each method. A primary economic driver for differential pricing seems to be payment for order flow (PFOF). However, specialists affiliated with and without PFOF-paying wholesalers provide similar pricing. Our results have market design and disclosures implications.

Bio

Xing Huang is an associate professor of Finance at the Olin Business School, Washington University in St. Louis. She received a Ph.D. in Economics from the University of California at Berkeley in 2013. Prior to Wash U, she served on the faculty of the Broad College of Business at Michigan State University.

Her research focuses on behavioral finance, asset pricing and household finance. She is interested in empirically characterizing how market participants behave, and identifying how these (non-standard) behaviors can improve our understanding on the pricing of the financial market.

For further information, please contact business-seminar-series@glasgow.ac.uk.

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First published: 22 October 2024

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