Trading costs for listed options: The implications for market efficiency |
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Authors: | Susan M Phillips Clifford W Smith |
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Institution: | The University of Iowa, Iowa City, IA 52240, USA;University of Rochester, Rochester, NY 14627, USA |
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Abstract: | This paper reexamines the anomalous evidence concerning the efficiency of the listed options exchanges. We focus on the structure of trading costs in that market, and note several costs which generally have been ignored, the largest of which is the bid-ask spread. When we adjust the published trading rules for our estimates of these trading costs, the reported abnormal returns are eliminated. |
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