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Competition without fungibility : evidence from alternative market structures for derivatives
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Bartram, Söhnke M. and Fehle, Frank R. (2007) Competition without fungibility : evidence from alternative market structures for derivatives. Journal of Banking and Finance, 31 (3). pp. 659-677. doi:10.1016/j.jbankfin.2006.02.004
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Official URL: http://dx.doi.org/10.1016/j.jbankfin.2006.02.004
Abstract
In this paper, we compare option contracts from a traditional derivatives exchange to bank-issued options, also referred to as covered warrants. While bank-issued option markets and traditional derivatives exchanges exhibit significant structural differences such as the absence of a central counterparty for bank-issued options, they frequently exist side-by-side, and the empirical evidence shows that there is significant overlap in their product offerings although options are not fungible between the two markets. The empirical analysis indicates that bid-ask spreads in either market are lowered by 1–2% due to competition from the other market, providing evidence that the benefits of competing market structures are available in the absence of fungibility.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
| Journal or Publication Title: | Journal of Banking and Finance | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 0378-4266 | ||||
| Official Date: | 2007 | ||||
| Dates: |
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| Volume: | 31 | ||||
| Number: | 3 | ||||
| Page Range: | pp. 659-677 | ||||
| DOI: | 10.1016/j.jbankfin.2006.02.004 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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