Huh, Sahn-Wook; Lin, Hao; Mello, Antonio S. - In: Journal of Financial Markets 23 (2015) C, pp. 26-58
We develop a model to analyze the effects of hedging activities by options market makers (OMMs) facing informed trading. The model suggests that OMMs׳ hedging activities motivated by adverse-selection risk lead to wider spreads in both stock and options markets. The hedging effect on spreads is...