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Are liquidity costs higher in options markets or in futures markets?

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  • Samarth Shah
  • B. Wade Brorsen

Abstract

This study compares liquidity costs in options and futures markets. Considerable research has estimated liquidity costs of futures trading, but there is little comparable research about futures options markets. The study uses transaction prices for stock futures and options contracts traded at the National Stock Exchange (NSE) of India. Six different measures are used to estimate liquidity costs of futures contracts. The same measures are also used to estimate liquidity costs of options. Liquidity costs in the options markets are considerably higher than in the futures. Option liquidity costs are shown to increase with the price of the option and decrease with volume.

Suggested Citation

  • Samarth Shah & B. Wade Brorsen, 2013. "Are liquidity costs higher in options markets or in futures markets?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(8), pages 701-708, April.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:8:p:701-708
    DOI: 10.1080/09603107.2012.750419
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    References listed on IDEAS

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