Information spillovers between derivative markets with differences in transaction costs and liquidity

Natividad Blasco, Pilar Corredor and Rafael Santamaria

Applied Economics Letters, 2009, vol. 16, issue 10, pages 1039-1047

Abstract: In line with the transactions cost theory, this article shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to information, since the futures market s response to shocks is quicker, which means that it receives higher volatility spillovers than does the options market.

Date: 2009

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