Options and Efficiency: Some Experimental Evidence.

This paper examines the information aggregation role of options when agents possess diverse information about possible asset returns. We construct two identical experimental markets: one with and one without options. We find that options speed the information aggregation process. Asset markets that have parallel option markets aggregate traders' diverse information faster than markets where options trading is not available. Implied ranges were calculated from asset and option prices and compared to the actual ranges. These comparisons suggest that options may provide a means for agents to coordinate beliefs about asset values. Copyright 1995 by Kluwer Academic Publishers