The effect of multiple listings on the bid–ask spread in option markets: The case of Montreal Exchange

✍ Scribed by Nabil Khoury; Klaus P. Fischer

• Publisher: John Wiley and Sons
• Year: 2002
• Tongue: English
• Weight: 122 KB
• Volume: 22
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10041

✦ Synopsis

Abstract

In this article, we examine the effect of multiple listings of options on their bid–ask spread, by
comparing options contracts listed only on the Montreal Exchange with those interlisted on that exchange and on a
U.S. exchange as well. Using a statistical procedure adapted to panel data and two models for the determination of
the bid–ask spread, we find that the bid–ask spreads of Montreal options interlisted in U.S. markets
are narrower than those of non‐interlisted options. That advantage tends to disappear, however, with an
increase in option price and to increase with its volatility, but is not affected by the volume of transactions in
the option market. The analysis also shows that interlisting may result in time lags in the convergence of quotes
between Montreal and the U.S. markets. Moreover, our evidence shows that with interlisting, volume shifts to the
option market where trading in the underlying security is concentrated, irrespective of the location where the
option was first introduced. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:939–957, 2002