نقدینگی بازار گزینه ای : اشتراک و ویژگی های دیگر
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13695||2010||29 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Markets, Volume 13, Issue 1, February 2010, Pages 20–48
This study examines option market liquidity using Ivy DB's OptionMetrics data. We establish convincing evidence of commonality for various liquidity measures based on the bid–ask spread, volumes, and price impact. The commonality remains strong even after controlling for the underlying stock market's liquidity and other liquidity determinants such as volatility. Smaller firms and firms with a higher volatility exhibit stronger commonalities in option liquidity. Aside from commonality, we also uncover several other important properties of the option market's liquidity. First, information asymmetry plays a much more dominant role than inventory risk as a fundamental driving force of liquidity. Second, the market-wide option liquidity is closely linked to the underlying stock market's movements. Specifically, the options liquidity responds asymmetrically to upward and downward market movements, with calls reacting more in up markets and puts reacting more in down markets.
Market liquidity has received much attention lately both in the media and in the academic literature. There are numerous studies that examine the liquidity characteristics and the pricing of illiquidity risk for stocks and bonds. In contrast, such research on the option market is still lacking or, at best, merely starting. Insofar as the ultimate goal is to determine how much premium illiquidity and illiquidity risk command, the first step is to study the liquidity characteristics and to investigate whether there exists an illiquidity risk. This is the focus of the current paper. We contribute to the literature by demonstrating the existence of illiquidity risk or liquidity commonality in the option market and by unveiling other important liquidity characteristics for options. Using data from Ivy DB's OptionMetrics for the period from January 1, 1996 to December 31, 2004, we demonstrate strong evidence of liquidity commonality in the option market for such liquidity measures as the bid–ask spread, volume, and price impact. The commonality remains after controlling for the impact of the underling stock market and the individual determinants of liquidity such as volatility. Moreover, we find a size-effect and a volatility-effect in commonality, especially for the spread measure: Smaller firms and firms with a higher volatility exhibit stronger commonalities in liquidity. Other than commonality, we also uncover several other important liquidity characteristics for the option market. First, employing various proxies and through different tests, we find that information asymmetry plays a much more important role than inventory risk as a driving force of the option market liquidity. One piece of supporting evidence is the positive correlation between changes in the bid–ask spread and the trading volume, in contrast to the more intuitive negative relation for stocks. Our findings are consistent with the notion that informed traders tend to trade in the option market ( Black, 1975 and Easley et al., 1998; Pan and Poteshman, 2006) and that market-makers infer information from volumes and protect themselves by widening the spread upon seeing an increase in the trading volume ( Easley and O’Hara, 1992; Kim and Verrechia, 1994). Second, the market-wide liquidity is closely linked to the movements of the overall underlying stock market. Specifically, the option market liquidity responds asymmetrically to upward and downward market movements. For instance, the proportional bid–ask spread of calls decreases in up markets and increases in down markets; for puts, the spread remains roughly unchanged in up markets but decreases in down markets. More striking is how call and put options respond differently to the same market movement: Call options’ liquidity mostly responds to upward market movements while put options’ liquidity mostly responds to downward movements. Our results therefore suggest that options are favored by informed traders to realize their information value and are also the investors’ choice to trade in response to general market movements. The literature on liquidity commonality originated from the seminal work of Chordia, Roll, and Subrahmanyam (2000) (CRS hereafter). They examined 1,169 NYSE stocks and found strong evidence of commonality. Independent of CRS (2000) and using different methodologies, Hasbrouck and Seppi (2001) and Huberman and Halka (2001) also showed the existence of common liquidity factors across stocks. Subsequent studies generally confirmed or rationalized the early evidence. For instance, Coughenour and Saad (2004) demonstrated that the covariation in liquidity is induced on the supply side since each NYSE specialist firm provides liquidity for many stocks and the firm's specialists share the same capital pool and relevant information; Brockman and Chung (2002), Fabre and Frino (2004), and Zheng and Zhang (2006) showed that commonality in liquidity also exists in order-driven markets; Brockman et al. (2009) confirmed the existence of liquidity commonality for stocks on 47 exchanges around the world; finally, Domowitz et al. (2005) showed that commonality in liquidity is a manifestation of the co-movements in supply and demand, which, in turn, are caused by the cross-sectional correlation in order types. The evidence of commonality or covariation in liquidity provides a strong motivation for a more general asset pricing framework. Although the literature is still in its infancy with respect to pricing models that encompass liquidity risk, some promising frameworks have emerged. For equities, Pástor and Stambaugh (2003) investigated and confirmed that the market-wide liquidity is a priced state factor; Acharya and Pedersen (2005) proposed a liquidity-adjusted capital asset pricing model and empirically verified the impact of liquidity on asset returns; Sadka (2006) extended the above studies by identifying the component of liquidity risk that can explain asset-pricing anomalies such as momentum and post-earnings-announcement drift; finally, Korajczyk and Sadka (2008) showed that commonality exists for each of the liquidity measures under their consideration and that there indeed exists a priced, aggregate latent liquidity factor across all measures. As for derivatives, Çetin et al., 2004 and Çetin et al., 2006 and Jarrow and Protter (2007) developed an option pricing framework that incorporates both the price risk and the liquidity risk, the latter of which is modelled as a stochastic supply curve. Çetin et al. (2006) showed that liquidity costs could account for a significant portion of the option price.1 The importance of liquidity in asset pricing is not without doubters. Some researchers have presented evidence that questions the effectiveness of liquidity in explaining cross-section returns. For instance, Hasbrouck (2006) estimated the effective cost of trading using daily close prices and showed that a stock's return covariation with the market liquidity is not a determinant of expected returns. Reconciling with the findings of the above-mentioned studies, he tempered his conclusion by pointing out the potential importance of other liquidity measures such as the trading volume. Spiegel and Wang (2005) compared the contributions of idiosyncratic risk and liquidity in explaining the cross-sectional patterns in stock returns. They found that stock returns are increasing in both idiosyncratic risk and illiquidity, but that idiosyncratic risk plays a more dominate role and it often eliminates illiquidity's explanatory power. Our study is not about the pricing of illiquidity risk in options; rather, we take the first step toward that direction by demonstrating the existence of liquidity commonality. The rest of the paper is organized as follows. In Section 1, we describe the data and define the liquidity measures. Section 2 presents the main results concerning commonality. Section 3 demonstrates other liquidity characteristics of the option market. Section 4 concludes the paper.
نتیجه گیری انگلیسی
Liquidity and its impact on asset prices have become a major focus in the academic literature. Most studies focus on liquidity properties for individual securities in isolation. Recently, some studies have emerged that examine the covariation or commonality in liquidity in the stock market. Arguably, identifying and understanding liquidity covariation is the first step toward building an asset pricing model encompassing liquidity risk. In this sense, there exists a large gap in the literature on option market liquidity, for there are no studies that examine the liquidity commonality for options. The current paper is the first step towards filling this gap in the literature by examining commonality and other liquidity characteristics for the option market. Using data from Ivy DB’s OptionMetrics covering the period from January 1, 1996 to December 31, 2004, we establish convincing evidence of liquidity commonality in the options market for a variety of liquidity measures. The commonality remains afterremoving the impacts of the underlying stock market and other liquidity determinants such as volatility. Liquidity commonality in options is stronger with smaller firms and more volatile stocks, indicating the existence of a size-effect and a volatility-effect. Aside from commonality, this study also uncovers several important features of the option market liquidity. To begin with, information asymmetry plays a far more important role than inventory risk as a fundamental driving force of liquidity. Besides the larger t -values for the information asymmetry proxies in the regression analysis, an important piece of supporting evidence is the positive relation between the changes in bid–ask spread and volume, contrary to the negative relation observed with stocks. Our results support the previous finding that informed traders may choose to trade in the option market ( Black, 1975; Easley et al., 1998; Pan and Poteshman, 2006 ). The results also support the notion that volumes also convey information and market-makers tend to protect themselves by widening the spread upon seeing an increase in the trading volume ( Easley and O’Hara, 1992; Kim and Verrechia, 1994 ). Another feature is the linkage between the options’ market-wide liquidity and the movements of the overall underlying stock market. There are two interesting findings in this regard. First, the option market liquidity responds asymmetrically to upward and downward market movements. For instance, call options’ liquidity improves in up markets and deteriorates in down markets. Second, the liquidity of call and put options behaves differently during the same market movement, with call options’ liquidity mostly responding to upward movements, while put options’ mostly responding to downward movements. Therefore, options are not only favored as informational trading tools, but they are also used as directional trading tools. This study serves as a first step toward understanding the overall property of the option market liquidity. It opens up several avenues for future research. One natural extension would be a cross-sectional study concerning the pricing of liquidity risk in options. Another area would be the in-depth examination of potential structures in options liquidity, especially with respect to moneyness and maturity buckets