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The effect of multiple listings on the bid–ask spread in option markets: The case of Montreal Exchange
Author(s) -
Khoury Nabil,
Fischer Klaus P.
Publication year - 2002
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10041
Subject(s) - bid price , bid–ask spread , volatility (finance) , financial economics , ask price , economics , business , econometrics , monetary economics , market liquidity , finance
In this article, we examine the effect of multiple listings of options on their bid–ask spread, bycomparing options contracts listed only on the Montreal Exchange with those interlisted on that exchange and on aU.S. exchange as well. Using a statistical procedure adapted to panel data and two models for the determination ofthe bid–ask spread, we find that the bid–ask spreads of Montreal options interlisted in U.S. marketsare narrower than those of non‐interlisted options. That advantage tends to disappear, however, with anincrease in option price and to increase with its volatility, but is not affected by the volume of transactions inthe option market. The analysis also shows that interlisting may result in time lags in the convergence of quotesbetween Montreal and the U.S. markets. Moreover, our evidence shows that with interlisting, volume shifts to theoption market where trading in the underlying security is concentrated, irrespective of the location where theoption was first introduced. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:939–957, 2002