This paper investigates the information asymmetry effect on bid-ask spreads of dollar-euro currency options traded in over-the-counter market. We use a composite indicator of systemic stress (CISS) as a proxy for the information asymmetry effect and find that the impact of CISS on bid-ask spread is positive and significant during volatile periods when traders are asymmetrically informed. Further, for options with maturities of less than six months, we also find a positive significant relationship between bid-ask spreads and the ECB’s monetary policy announcements, suggesting informed option trading before, during and after such announcements. For longer-dated options, our result suggests that the information asymmetry effect is less pronounced in the bid-ask spreads. These results are confirmed using the Glosten and Milgrom (1985) model.
|Title of host publication||Proceedings of the 30th Australasian Finance and Banking Conference 2017|
|Number of pages||24|
|Publication status||Published - 11 Dec 2017|
|Event||30th Australasian Finance and Banking Conference (AFBC) - Shangri-La Hotel, Sydney, Australia|
Duration: 13 Dec 2017 → 15 Dec 2017
|Conference||30th Australasian Finance and Banking Conference (AFBC)|
|Period||13/12/17 → 15/12/17|
|Other||The 30th Australasian Finance and Banking Conference (AFBC) is organised by the Institute of Global Finance and the School of Banking and Finance, UNSW Business School. The Conference will be held on 13–15 December 2017 at the Shangri-La Hotel, Sydney, Australia. |
The AFBC is the most significant and prestigious finance conference in the Asia-Pacific region. It brings together the world's foremost leaders of thought from the financial community, providing international academics and industry professionals with the opportunity to meet and share their research and interest in finance-related fields. The Conference Committee would like to invite all academics and practitioners to participate.
A range of prizes are available for papers that are selected for presentation at the conference.