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Information spillovers between derivative markets with differences in transaction costs and liquidity

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  • Natividad Blasco
  • Pilar Corredor
  • Rafael Santamaria

Abstract

In line with the transactions cost theory, this article shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to information, since the futures market s response to shocks is quicker, which means that it receives higher volatility spillovers than does the options market.

Suggested Citation

  • Natividad Blasco & Pilar Corredor & Rafael Santamaria, 2009. "Information spillovers between derivative markets with differences in transaction costs and liquidity," Applied Economics Letters, Taylor & Francis Journals, vol. 16(10), pages 1039-1047.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:10:p:1039-1047
    DOI: 10.1080/13504850701335277
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    Cited by:

    1. Wen-chung Guo & Ying-huei Chen, 2014. "Pricing of put warrants and competition among issuers," Economics Bulletin, AccessEcon, vol. 34(4), pages 2315-2323.
    2. Kang, Bo Soo & Park, Chanhi & Ryu, Doojin & Song, Wonho, 2015. "Phase transition phenomenon: A compound measure analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 383-395.
    3. Chen, Haojun & Maher, Daniela, 2013. "On the predictive role of large futures trades for S&P500 index returns: An analysis of COT data as an informative trading signal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 177-201.
    4. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2019. "Hidden Power of Trading Activity: The FLB in Tennis Betting Exchanges," Journal of Sports Economics, , vol. 20(2), pages 261-285, February.

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