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The Intraday Behavior of Bid-Ask Spreads for NYSE Stocks and CBOE Options

Kalok Chan, Y. Peter Chung and Herb Johnson
The Journal of Financial and Quantitative Analysis
Vol. 30, No. 3 (Sep., 1995), pp. 329-346
DOI: 10.2307/2331344
Stable URL: http://www.jstor.org/stable/2331344
Page Count: 18
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The Intraday Behavior of Bid-Ask Spreads for NYSE Stocks and CBOE Options
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Abstract

We study the intraday behavior of bid-ask spreads for actively traded CBOE options and for their NYSE-traded underlying stocks. We confirm previous findings that stocks have a U-shaped spread pattern; however, the options display a very different intraday pattern--one that declines sharply after the open, and then levels off. Our results suggest that both the degree of competition in market making and the extent of informed trading are important for understanding the intraday behavior of spreads.

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