The Market Microstructure of Stock Futures and Equity Options

Benzennou, Bouchra (2017) The Market Microstructure of Stock Futures and Equity Options. PhD thesis, Prifysgol Bangor University.

[img] Text
Benzennou PhD 2017.pdf
Restricted to Repository staff only

Download (2MB)


This thesis investigates aspects of the market microstructure of single stock futures (SSF) and equity options. The first empirical chapter studies the intraday patterns of time-weighted bid-ask spreads, volatility, and the number of quotes. For SSF contracts traded in London and Lisbon, the chapter reports statistical evidence of intraday features in the three variables. The overall results reveal U-shapes in spreads, volatility (except for the Lisbon market), and the number of quotes, implying a concentrated demand to trade and an increase in order execution costs at the open and close, as spreads are wider and volatility is higher. Moreover, the chapter’s results suggest that the impact of US news announcements is evident in the London SSF market, causing it to be less liquid and more volatile. The second investigation tests the hypothesis that traders use SSF as a substitute instrument for short-selling, in which case they will shift to SSF trading when short-sales are banned. A significant increase in the trading activity of SSF in the London market during the 2008-9 ban period is documented, accompanied by narrower spreads, i.e. higher liquidity. Volatility did not react to the ban which suggests that the increase in trading activity did not weaken SSF market quality. The quality of the underlying market in the presence of SSF is also assessed and the results suggest that SSF neither improve nor worsen the underlying assets’ liquidity, volatility and volume over the ban period. The findings offer important insights into the effectiveness of regulatory interventions on short-selling. The third empirical chapter investigates the existence of common aggregate factors driving liquidity across different markets. The evidence suggests that liquidity across different European equity options markets co-moves. Similar results are observed for commonality in liquidity across options and SSF markets, implying that liquidity in different derivative markets concurrently moves in the same direction. These findings are relevant to investors when timing their hedging, speculation, or arbitrage strategies.

Item Type: Thesis (PhD)
Additional Information: No signed declaration
Subjects: Degree Thesis
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Degree Thesis
Date Deposited: 06 Feb 2018 09:22
Last Modified: 06 Feb 2018 09:22
URI: http://e.bangor.ac.uk/id/eprint/10868
Administer Item Administer Item

eBangor is powered by EPrints 3 which is developed by the School of Electronics and Computer Science at the University of Southampton. More information and software credits.