Time-varying crash risk : the role of stock market liquidity

Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai

We estimate a continuous-time model with dynamic crash probability using the S&P500 index options and high-frequency information. We find that market illiquidity is an important factor in explaining the time-varying stock market crash risk embedded in index options. While market illiquidity and return volatility play complementary roles in explaining the time-varying crash risk, the relative contribution of the volatility factor is weakened once we include market illiquidity as an economic variable. Examining the link between market illiquidity and option-implied crash risk, we find that the availability of arbitrage capital and adverse selection facing liquidity providers are economic driving forces

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Year of publication:	September 2016
Authors:	Christoffersen, Peter F. ; Feunou, Bruno ; Jeon, Yoontae ; Ornthanalai, Chaywat
Publisher:	[Toronto] : [University of Toronto - Rotman School of Management]
Subject:	Marktliquidität \| Market liquidity \| Aktienmarkt \| Stock market \| Finanzkrise \| Financial crisis \| Marktmechanismus \| Market mechanism \| Theorie \| Theory

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Extent:	1 Online-Ressource (circa 54 Seiten) Illustrationen
Series:	Rotman School of Management working paper / University of Toronto Rotman School of Management. - Toronto, ZDB-ID 2821585-0. - Vol. no. 2797308
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Other identifiers:	10.2139/ssrn.2797308 [DOI]
Classification:	G01 - Financial Crises ; G12 - Asset Pricing
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011547569