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High-frequency trading in the stock market and the costs of options market making

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dc.contributor.coauthorNimalendran, Mahendrarajah
dc.contributor.coauthorSagade, Satchit
dc.contributor.departmentDepartment of Business Administration
dc.contributor.kuauthorFaculty Member, Rzayev, Khaladdin
dc.contributor.schoolcollegeinstituteCollege of Administrative Sciences and Economics
dc.date.accessioned2024-12-29T09:38:24Z
dc.date.issued2024
dc.description.abstractWe investigate how high-frequency trading (HFT) in equity markets affects options market liquidity. We find that increased aggressive HFT activity in the stock market leads to wider bid-ask spreads in the options market through two main channels. First, options market makers' quotes are exposed to sniping risk from HFTs exploiting put-call parity violations. Second, informed trading in the options market further amplifies the impact of HFT in equity markets on the liquidity of options by simultaneously increasing the options bid-ask spread and intensifying aggressive HFT activity in the underlying market.
dc.description.indexedbyWOS
dc.description.indexedbyScopus
dc.description.openaccesshybrid
dc.description.publisherscopeInternational
dc.description.sponsoredbyTubitakEuN/A
dc.description.volume159
dc.identifier.doi10.1016/j.jfineco.2024.103900
dc.identifier.issn0304-405X
dc.identifier.quartileQ1
dc.identifier.scopus2-s2.0-85197221519
dc.identifier.urihttps://doi.org/10.1016/j.jfineco.2024.103900
dc.identifier.urihttps://hdl.handle.net/20.500.14288/22685
dc.identifier.wos1265233400001
dc.keywordsHigh-frequency trading
dc.keywordsOptions liquidity
dc.keywordsHedging
dc.keywordsLatency arbitrage
dc.keywordsInformed trading
dc.language.isoeng
dc.publisherElsevier Sci Ltd
dc.relation.ispartofJournal of Financial Economics
dc.subjectBusiness
dc.subjectFinance
dc.subjectEconomics
dc.titleHigh-frequency trading in the stock market and the costs of options market making
dc.typeJournal Article
dspace.entity.typePublication
local.contributor.kuauthorRzayev, Khaladdin
local.publication.orgunit1College of Administrative Sciences and Economics
local.publication.orgunit2Department of Business Administration
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