We empirically examine the impact of trading activities on the liquidity of individual equity options measured by the proportional bid–ask spread. There are three main findings. First, the option return volatility, defined as the option price elasticity times the stock return volatility, has a much higher power in explaining the spread variations than the commonly considered liquidity determina...

Entrepreneurs need cash to finance their investments. Since cash is costly to hold, entrepreneurs underinvest. If entrepreneurs are able to access secondary financial markets, then they can sell some of their less liquid assets for cash and invest at a higher level. When the secondary financial markets are over-the-counter (OTC), the amount of liquidity (cash) that is in the market affects asse...

Comments welcome * We thank Dennis Epple for helpful comments. The Institute for Quantitative Research in Finance provided generous financial support. All errors are our own responsibility. Abstract How important are cross-stock common factors in the price discovery/liquidity provision process in equity markets? We investigate two aspects of this question for the thirty Dow stocks. First, using...

This paper studies liquidity and volatility commonality in the Canadian stock market. We show that five various liquidity measures display strong evidence of commonality at both market-wide and industry specific levels. Our findings extend the results of previous studies in liquidity commonality, and show that even after controlling for individual determinants of liquidity such as price, volume...