High-frequency trading in the stock market and the costs of options market making

• 成果类型: Article
• 署名作者: Nimalendran, Mahendrarajah; Rzayev, Khaladdin; Sagade, Satchit
• 署名单位: State University System of Florida; University of Florida; University of Edinburgh; Koc University; University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103900
• 发表日期: 2024
• 关键词: High-frequency trading; Options liquidity; hedging; Latency arbitrage; Informed trading

摘要

We investigate how high-frequency trading (HFT) in equity markets affects options market liquidity. We find that increased aggressive HFT activity in the stock market leads to wider bid-ask spreads in the options market through two main channels. First, options market makers' quotes are exposed to sniping risk from HFTs exploiting put-call parity violations. Second, informed trading in the options market further amplifies the impact of HFT in equity markets on the liquidity of options by simultaneously increasing the options bid-ask spread and intensifying aggressive HFT activity in the underlying market.