Bid-ask spread and liquidity searching behaviour of informed investors in option markets
Bernales, Alejandro Cañón, Carlos Verousis, Thanos
Bernales, Alejandro
Cañón, Carlos
Verousis, Thanos
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2018
Journal
Finance Research Letters
Book
Publication Volume
25
Publication Issue
June
Publication Begin page
96
Publication End page
102
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Abstract
We show evidence of a liquidity searching behaviour of informed investors in option listings, which was also found by Collin-Dufresne and Fos (2015) using stock markets. Nevertheless, and differently from Collin-Dufresne and Fos (2015), we find that the option bid–ask spread may be still a good proxy for informed trading, despite of the liquidity searching behaviour of informed agents. We show an upward trend in the option bid–ask spread after option introductions (as informed traders avoid trading in initial periods after listing dates due to the low liquidity environment), which is steeper for options with high chances of information asymmetries.
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Keywords
Stock Options, Option Listings, Informed Trading