From Funding Liquidity to Market Liquidity: Evidence from the Index Options Market
Journal of Futures Markets, 38(10), 1189-1205, 2018
Posted: 9 Mar 2021
Date Written: March 15, 2018
This study examines the relationship between funding liquidity and market liquidity using daily data on the S&P 500 index options. We find that options market liquidity is positively correlated with funding liquidity after controlling for market uncertainty. Further analysis reveals that the positive relationship between funding liquidity and market liquidity in the options market is mainly driven by short‐term and deep out‐of‐the‐money options. Our results remain robust after controlling for the confounding effects of the equity market and different data frequencies.
Keywords: funding liquidity, options market liquidity, VIX
Suggested Citation: Suggested Citation