The Effects of Spot Transparency on the Bid-Ask Spreads and Volume of Traded Share Options
London School of Economics & Political Science (LSE) - Department of Accounting and Finance
University of Reading - ICMA Centre
Discussion Paper 96-126
It has been argued that the lack of transparency on the London Stock Exchange, caused by the practice of delaying publication of large trades, has adverse consequences for the market in traded share options on LIFFE. This hypothesis in investigated in two ways. First, the structure of equity options quotes is studied to see whether delayed publication widens the bid-ask spread. Second, regression analysis using daily and 30-minute data is applied to quantify the effects on non-transparent equity trades on the options market. The lack of transparency does not appear to have widened options traded spreads. While the volume of transparent equity trades does have a positive effect on contemporaneous options volume, non-transparent equity trades have little impact on options volume. Thus, there is no evidence that information asymmetries are exploited in the options market.
JEL Classification: G12, G14, G15working papers series
Date posted: May 11, 1998
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