Commonality in equity options liquidity: Evidence from European Markets
Verousis, Thanos Ap Gwilym, Owain Voukelatos, Nikolaos
Verousis, Thanos
Ap Gwilym, Owain
Voukelatos, Nikolaos
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2016
Journal
European Journal of Finance
Book
Publication Volume
22
Publication Issue
12
Publication Begin page
1204
Publication End page
1223
Publication Number of pages
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Abstract
This paper examines commonality in liquidity for individual equity options trading in European markets. We use high-frequency data to construct a novel index of liquidity commonality. The approach is able to explain a substantial proportion of the liquidity variation across individual options. The explanatory power of the common liquidity factor is more pronounced during periods of higher market-wide implied volatility. The common factor's impact on individual options' liquidity depends on options' idiosyncratic characteristics. There is some evidence of systematic liquidity spillover effects across these European exchanges.
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Keywords
Options, Commonality, Liquidity, Bid-Ask Spread