Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091147 | Journal of Banking & Finance | 2006 | 16 Pages |
Abstract
This paper examines the contribution of market makers to the liquidity and the efficiency of the options market in a unique setup of an order-driven computerized trading system, in which market makers and other participants operate under equitable conditions. The main findings are: (1) liquidity increased - a 60% increase in trading volume and a 35% decrease of bid-ask spreads; (2) the efficiency of shekel-euro options trading improved - deviations from put-call parity decreased significantly by 12%, and skewness decreased by about 30%. We also find that the net cost to the exchange is out weighted by the benefit to the trading public and that the presence of market makers encouraged trading between other participants far beyond their own trading.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Rafi Eldor, Shmuel Hauser, Batia Pilo, Itzik Shurki,