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Article
What do options have to do with it?: Inclusion of options market indicators in bid-ask spread decomposition
Asia-Pacific journal of financial studies
  • David Michayluk
  • Laurie Prather, Bond University
  • Li-Anne E. Woo, Bond University
  • Henry Y. K. Yip
Date of this Version
6-1-2009
Document Type
Journal Article
Publication Details

Interim status: Citation only.

Michayluk, D., Prather, L., Woo, Li-Anne E. & Yip, Henry Y. K. (2009). What do options have to do with it?: Inclusion of options market indicators in bid-ask spread. Asia-Pacific journal of financial studies, 38(3), 455-489.

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2009 HERDC submission. FoR code: 1502

© Copyright 2009 AJFS. All rights reserved.

Abstract

This 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 Information
David 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/