Article Abstract:
A comparison of transaction costs between the American Stock Exchange (AMEX) and the Chicago Board Options Exchange (CBOE) is made based on an analysis of the bid-ask spreads of the two market structures. Bid-ask spreads are described as a function of the option price, option return standarddeviation, trade size, trading volume and market structure. For options of low volume, the specialist structure of the AMEX displayed transaction costs that were small. This difference between the AMEX and the competitive market maker structure of the CBOE appears to lessen as volume increases. The AMEX was also observed to perform a greater portion of trades within quotes. These observations provide serious implications of the adverse effects on economic efficiency of the continued encouragement of monopoly rights to trade options.
User Contributions:
Comment about this article or add new information about this topic:
Article Abstract:
Actual market data is used to test seven duration measures to determine whether any is a satisfactory measure of basis risk. Results show that none of the durations is adequate as a measure of basis risk. Data analysis reveals that the relation between returns and duration appears to be nonlinear, contrary to the hypotheses of the duration measures. Simple factor models are identified as superior measures. The duration measures are not satisfactory for fixed-income performance comparisons, and immunization strategies based on duration may not work.
User Contributions:
Comment about this article or add new information about this topic:
Article Abstract:
The existence of insider trading affects the ratio of risk sharing and causes market makers to reduce market liquidity. The adverse effects of insider trading on market liquidity can be eased by monopolist specialists who average their profits across trades, unlike market makers who expect a zero profit on every trade.
User Contributions:
Comment about this article or add new information about this topic: