What do options have to do with it?: Inclusion of options market indicators in bid-ask spread decompositionAsia-Pacific journal of financial studies
Date of this Version6-1-2009
Document TypeJournal Article
AbstractThis paper develops a cross-market model to extend Huang and Stoll (1997) by utilizing information from trade flows in the options market. Empirical tests reveal a significant increase in the estimated adverse information component, which stays consistent irrespective of the degree of option leverage. Further, intraday variation in stock bid-ask spread components is affected by the stock trade size and the extent of imbalance in information-based option trades. Including the options market information in decomposition of the stock bid-ask spread enhances the quality of its estimation.
Citation InformationDavid Michayluk, Laurie Prather, Li-Anne E. Woo and Henry Y. K. Yip. "What do options have to do with it?: Inclusion of options market indicators in bid-ask spread decomposition" Asia-Pacific journal of financial studies Vol. 38 Iss. 3 (2009) p. 455 - 489
Available at: http://works.bepress.com/li_anne_woo/6/