The Intraday Behavior of Bid-Ask Spreads, Returns, and Volatility for FTSE-100 Stock Index Options
Owain Ap Gwilym
Bangor Business School
University of Wales, Swansea - School of Business and Economics
University of Southampton - School of Management
J. OF DERIVATIVES, Summer 1997
The microstructure of stock markets and futures markets has attracted considerable recent attention, but the evidence relating to options markets is sparse, especially for the U.K. This article addresses this void in the literature by presenting evidence on the intraday behavior of bid-ask spreads, returns, volatility, and volume. Both clear differences and similarities are found with the previous results for other markets.Spreads are found to be wide near the market open and narrow near the close. Although this contrasts with some previous evidence in U.S. stock and futures markets of a U-shaped pattern in intraday spreads, it is consistent with other recent research, and the differences may be explained by differing market structures. No clear pattern emerges in options returns, but there is a U-shape across the day in returns volatility and in volume. The results help to differentiate between the competing theories of the intraday behavior of these key variables.
JEL Classification: G13, G14, G15Accepted Paper Series
Date posted: July 31, 1997
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