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Commonality in equity options liquidity: evidence from European Markets |
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| Authors: | Thanos Verousis Owain ap Gwilym Nikolaos Voukelatos |
| Affiliation: | 1. Newcastle University Business School, Newcastle NE1 4SE, UKthanos.verousis@newcastle.ac.uk;3. Bangor Business School, Bangor University, Bangor LL57 2DG, UK;4. Kent Business School, University of Kent, Kent CT2 7PE, UK |
| 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. |
| Keywords: | options commonality liquidity bid-ask spread |