When trading options is not the only option: The effects of single-stock futures trading on options market quality |
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| Authors: | George J Jiang Yoshiki Shimizu Cuyler Strong |
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| Institution: | 1. Department of Finance and Management Science, Carson College of Business, Washington State University, Pullman, Washington;2. Department of Accounting and Finance, Labovitz School of Business and Economics, University of Minnesota Duluth, Duluth, Minnesota |
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| Abstract: | We use the 2008 short-selling ban to examine the impact of single-stock futures (SSFs) trading on options market quality. We show that there is a substitution effect between options trading and SSFs trading during the ban period. In addition, our results show that SSFs trading had a significant effect in narrowing the bid-ask spreads of options contracts. Moreover, compared to stocks without SSFs, stocks with SSFs were less likely to violate put-call parity during the ban period. Our results suggest that SSFs trading helps mitigate the negative effect of the short-selling ban on options market quality documented in the literature. |
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| Keywords: | financial crisis options market quality short-selling ban single-stock futures |
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