From funding liquidity to market liquidity: Evidence from the index options market
Cheng Zhang () and
Zhiping Zhou ()
Journal of Futures Markets, 2018, vol. 38, issue 10, 1189-1205
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.
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:38:y:2018:i:10:p:1189-1205
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