Bartram, Söhnke M., Fehle, Frank and Shrider, David G.. (2008) Does adverse selection affect bid–ask spreads for options? Journal of Futures Markets, Vol.28 (No.5). pp. 417-437. ISSN 0270-7314

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Abstract

This study examines two different option markets to test whether differences in the level of adverse selection faced by market makers affect the size of bid–ask spreads. The data are from bank-issued options that trade on EuWax, where market makers face little adverse selection and traditional options that trade on EuRex. The results support the hypothesis that the adverse selection component of the bid–ask spread is important, as options on EuWax have lower bid–ask spreads than comparable options on EuRex. The results show that the adverse selection component represents at least half of the overall bid–ask spreads on the traditional EuRex.

Item Type:	Journal Article
Subjects:	H Social Sciences > HF Commerce
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Futures Markets
Publisher:	John Wiley & Sons Ltd.
ISSN:	0270-7314
Date:	2008
Volume:	Vol.28
Number:	No.5
Number of Pages:	21
Page Range:	pp. 417-437
Identification Number:	10.1002/fut.20316
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/44724

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