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From funding liquidity to market liquidity: Evidence from the index options market
Author(s) -
Liu Chunbo,
Zhang Cheng,
Zhou Zhiping
Publication year - 2018
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.21920
Subject(s) - market liquidity , index (typography) , business , liquidity crisis , funding liquidity , liquidity risk , financial system , monetary economics , economics , finance , computer science , world wide web
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.