The Effect of Option Trading on the Structure of Equity Bid/Ask Spreads

The Effect of Option Trading on the Structure of Equity Bid/Ask Spreads This paper investigates empirically the direct effect of option trading on the structure of costs that comprise the underlying equity bid-ask spread. Our results show that the spread declines over a 30-day period following initiation of option trading, but the decline vanishes when price, volume, and volatility effects are considered. Changes in the composition of the spread reflect primarily a reduction in adverse information costs. Additionally, consistent with previous research, we find significant transaction-type clustering in our intraday data. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Effect of Option Trading on the Structure of Equity Bid/Ask Spreads

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008358627063
Publisher site
See Article on Publisher Site

References

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