The value of liquidity: Evidence from the derivatives market

Chan, Howard; Pinder, Sean

doi:10.1016/s0927-538x(00)00018-4

Cited by 26 publications

(20 citation statements)

References 26 publications

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“…{ By contrast, the empirical evidence as to the determinants of the bid-ask *Corresponding author. Email: giovanni.petrella@unicatt.it x Empirical studies document higher premiums on covered warrants than for comparable traded options in Australia (Chan and Pinder 2000), Netherlands (Horst and Veld 2008), Germany (Bartram and Fehle 2007) and Spain (Abad and Nieto 2010). { Adverse selection costs arise from the risk that the dealer may trade with an informed trader and this will result in a loss for the dealer since the informed trader knows in advance the future price path of the stock.…”

Section: Introductionmentioning

confidence: 99%

The bid–ask spread of bank-issued options: a quantile regression analysis

Petrella

Segara

2013

Quantitative Finance

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In this paper we study the bid-ask spread of covered warrants, which are securitized derivatives also referred to as bank-issued options. We find that most of the factors affecting the size of the bid-ask spread for covered warrants are common to those affecting the bid-ask spread of regular options (such as hedging costs and order processing costs). However, we also find two results that are specific to covered warrants. First, competition among warrant issuers does not play an important role in reducing covered warrant bid-ask spread. Second, warrant market makers set the bid-ask spread taking into account the risk of trading with scalpers. We estimate quantile regressions to check whether the relations between the covered warrant bid-ask spread and explanatory variables depend on the size of the spread and to check whether results are robust to outliers. We find that the coefficient associated with hedging costs increases considerably as the size of the bid-ask spread increases, implying that a change in the hedging costs affects more warrants with wide bid-ask spread than warrants with tight bid-ask spread.

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Section: Introductionmentioning

confidence: 99%

The bid–ask spread of bank-issued options: a quantile regression analysis

Petrella

Segara

2013

Quantitative Finance

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“…Other papers which study bank-issued options areChan and Pinder (2000),Petrella (2001),Horst and Veld (2002), andBartram et al (2006).4 While issuing banks continuously quote bid and ask prices, the bid quotes are conditional on the investor having previously purchased the option.…”

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confidence: 99%

Competition without fungibility: Evidence from alternative market structures for derivatives

Bartram

Fehle

2007

Journal of Banking & Finance

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“…Using data from the Australian covered warrants market between 1997 and 1998, Chan and Pinder (2000) investigate the relative price difference between warrants and options with the same underlying shares. Adopting a regression analysis, they find that on average the warrants market prices are higher than options market prices.…”

Section: Literature Reviewmentioning

confidence: 99%