Measurement of the Bid-Ask Spread in Equity Option Markets

Michelle Danis
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Michelle Danis: Office of Federal Housing Enterprise Oversight

No 04-02, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: This paper develops a joint model of exchange entry and the bid-ask spread in equity option markets. To our knowledge, no other study of spreads in financial markets has incorporated the exchange decision about whether or not to list a security. This allows us to control for the potential endogeneity of the exchanges in a manner consistent with a game theoretic model of entry.

Pages: 26 pages
Date: 2004-01
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