MARKETWIDE LIQUIDITY AND OPTIONS MARKET
Abstract
In this paper, we study the relationship between marketwide liquidity and options market. Using the Chicago Board Options Exchange (CBOE) Volatility Index, VIX as a measure of overall value of the S&P 500 (SPX) options, and the CBOE SKEW Index as a measure of market crash risk premium in the options market, we study the relation among marketwide liquidity, VIX and SKEW. Empirical results show that higher the marketwide liquidity, less expensive the options and the less likely options traders anticipate a market crash.
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Copyright (c) 2022 Jin Zhang, Hai Lin
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