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

See all articles by Chunbo Liu

Chunbo Liu

Institute of Financial Studies, Southwestern University of Finance and Economics

Cheng Zhang

Victoria University of Wellington - Te Herenga Waka

Zhiping Zhou

Tongji University - School of Economics and Management

Date Written: March 15, 2018

Abstract

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

Liu, Chunbo and Zhang, Cheng and Zhou, Zhiping, From Funding Liquidity to Market Liquidity: Evidence from the Index Options Market (March 15, 2018). Journal of Futures Markets, 38(10), 1189-1205, 2018, Available at SSRN: https://ssrn.com/abstract=3769677

Chunbo Liu

Institute of Financial Studies, Southwestern University of Finance and Economics ( email )

55 Guanghuacun Street
Qingyang area
Chengdu, Sichuan 610074
China

Cheng Zhang

Victoria University of Wellington - Te Herenga Waka ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Zhiping Zhou (Contact Author)

Tongji University - School of Economics and Management ( email )

Siping Road 1500
Shanghai, Shanghai 200092
China

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