Commonality in equity options liquidity: Evidence from European Markets

Thanos Verousis; Owain ap Gwilym; Nikolaos Voukelatos

doi:10.1080/1351847X.2016.1188836

Commonality in equity options liquidity: Evidence from European Markets

Thanos Verousis
, Owain ap Gwilym
, Nikolaos Voukelatos

The Albert Gubay Business School

Newcastle University
University of Kent

Research output: Contribution to journal › Article › peer-review

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Abstract

This paper examines commonality in liquidity for individual equity
options trading in European markets. We use high-frequency data to
construct a novel index of liquidity commonality. The approach is able
to explain a substantial proportion of the liquidity variation across
individual options. The explanatory power of the common liquidity
factor is more pronounced during periods of higher market-wide
implied volatility. The common factor’s impact on individual options’
liquidity depends on options’ idiosyncratic characteristics. There is
some evidence of systematic liquidity spillover effects across these
European exchanges.

Original language	English
Pages (from-to)	1204-1223
Journal	European Journal of Finance
Volume	22
Issue number	12
DOIs	https://doi.org/10.1080/1351847X.2016.1188836
Publication status	Published - 24 May 2016

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2016 Commonality in equity Accepted author manuscript, 886 KB

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title = "Commonality in equity options liquidity: Evidence from European Markets",

abstract = "This paper examines commonality in liquidity for individual equity options trading in European markets. We use high-frequency data to construct a novel index of liquidity commonality. The approach is able to explain a substantial proportion of the liquidity variation across individual options. The explanatory power of the common liquidity factor is more pronounced during periods of higher market-wide implied volatility. The common factor{\textquoteright}s impact on individual options{\textquoteright} liquidity depends on options{\textquoteright} idiosyncratic characteristics. There is some evidence of systematic liquidity spillover effects across these European exchanges.",

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AB - This paper examines commonality in liquidity for individual equity options trading in European markets. We use high-frequency data to construct a novel index of liquidity commonality. The approach is able to explain a substantial proportion of the liquidity variation across individual options. The explanatory power of the common liquidity factor is more pronounced during periods of higher market-wide implied volatility. The common factor’s impact on individual options’ liquidity depends on options’ idiosyncratic characteristics. There is some evidence of systematic liquidity spillover effects across these European exchanges.

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Commonality in equity options liquidity: Evidence from European Markets

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