Advanced Search
MyIDEAS: Login

Clustering of Trading Activity in the DAX Index Options Market

Contents:

Author Info

Abstract

A common contention is that more liquid financial contracts draw trading volume from contracts for which they are close substitutes. This paper tests this hypothesis by analyzing clustering of trading activity in DAX index options. Contracts with identical maturities cluster around particular classes of strike prices. For example, options with strikes ending on 50 are less traded than options with strikes ending on 00. The degree of substitution between options with neighboring strikes depends on the strike price grid and options’ characteristics. Our empirical analysis finds a positive relation between clustering and substitutiability between option contracts, providing support to the initial hypothesis.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe0502.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, Royal Holloway University of London in its series Royal Holloway, University of London: Discussion Papers in Economics with number 05/02.

as in new window
Length: 35 pages
Date of creation: Mar 2005
Date of revision: Mar 2005
Handle: RePEc:hol:holodi:0502

Contact details of provider:
Postal: Egham Hill, Egham, Surrey, TW20 0EX, UK.
Phone: +44 1784-414228
Fax: +44 1784-439534
Web page: http://www.rhul.ac.uk/economics/

Order Information:
Postal: Egham Hill, Egham, Surrey, TW20 0EX, UK.
Email:

Related research

Keywords: Clustering; Incidental Truncation; Index Options; Volume.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  2. George, Thomas J. & Longstaff, Francis A., 1993. "Bid-Ask Spreads and Trading Activity in the S&P 100 Index Options Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(03), pages 381-397, September.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
  5. Grossman, Sanford J, et al, 1997. "Clustering and Competition in Asset Markets," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 23-60, April.
  6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Zdravetz Lazarov, 2004. "Distribution of Trading Activity across Strike Prices in the DAX Index Options Market," Bonn Econ Discussion Papers bgse7_2004, University of Bonn, Germany.
  2. He, Yan & Wu, Chunchi, 2004. "Price rounding and bid-ask spreads before and after the decimalization," International Review of Economics & Finance, Elsevier, vol. 13(1), pages 19-41.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hol:holodi:0502. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claire Blackman).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.