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- Title
Competition, Market Structure, and Bid-Ask Spreads in Stock Option Markets.
- Authors
MAYHEW, STEWART
- Abstract
This paper examines the effects of competition and market structure on equity option bid-ask spreads from 1986 to 1997. Options listed on multiple exchanges have narrower spreads than those listed on a single exchange, but the difference diminishes as option volume increases. Option spreads become wider when a competing exchange delists the option. Options traded under a 'Designated Primary Marketmaker' (DPM) have narrower quoted spreads than those traded in a traditional open outcry crowd. Effective spreads are found to be slightly narrower under the DPM than in the crowd, but only since 1992, and only on low-volume options.
- Subjects
OPTIONS (Finance); SPREAD (Finance); STOCK options; STOCK exchanges; PORTFOLIO management (Investments); COMPETITION; LISTING of securities; INVESTMENT analysis; MARKET makers; INSTITUTIONAL investors
- Publication
Journal of Finance (Wiley-Blackwell), 2002, Vol 57, Issue 2, p931
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/1540-6261.00447