Effective Bid-Ask Spreads in Futures versus Futures Options

While considerable research has estimated liquidity costs of futures trading, little comparable research is available about options markets. This study determines effective bid-ask spreads in options and futures markets for Kansas City Board of Trade (KCBT) wheat. Effective bid-ask spreads are estimates of the actual liquidity cost of a round-trip order. Option liquidity costs are estimated using a new measure of effective spreads developed for options markets. Futures effective spreads are estimated using eight different measures developed in previous studies. Estimated effective bid-ask spreads of options contracts are at least double the effective bid-ask spreads of open-outcry futures contracts.
Cite

Citation

Shah, Samarth; Brorsen, B. Wade; Anderson, Kim B., Effective Bid-Ask Spreads in Futures versus Futures Options, Journal of Agricultural and Resource Economics, Volume 37, Issue 3, December 2012, Pages 455-468

Share on twitter
Share on linkedin
Share on facebook