Zeros

Asset prices can be stale. We define price staleness as a lack of price adjustments yielding zero returns (i.e., zeros). The term idleness (respectively, near idleness) is, instead, used to define staleness when trading activity is absent (respectively, close to absent). Using statistical and pricing metrics, we show that zeros are a genuine economic phenomenon linked to the dynamics of trading volume and, therefore, liquidity. Zeros are, in general, not the result of institutional features, like price discreteness. In essence, spells of idleness or near idleness are stylized facts suggestive of a key, omitted market friction in the modeling of asset prices. We illustrate how accounting for this friction may generate sizable risk compensations in short-dated option returns. This paper was accepted by Kay Giesecke, finance.

• 저널Management Science · 66(8) · 3466–3479
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.2019.3527
• 저자Federico M. Bandi, Aleksey Kolokolov, Davide Pirino, Roberto Renò