Differences of Opinion of Public Information and Speculative Trading in Stocks and Options

We analyze the effects of differences of opinion on the dynamics of trading volume in stocks and options. We find that disagreements about the mean of the current- and next-period public information lead to trading in stocks in the current period but have no effect on options trading. Without options, we find that disagreements about the precision of all past and current public information affect trading in stocks in the current period. With options, only disagreements about the precisions of the next- and current-period information affect stocks and options trading in the current period. Our results suggest that options trading is concentrated around information events that are likely to cause disagreements among investors, whereas trading in stocks may be diffusive over many periods.