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Persistent link: https://www.econbiz.de/10011377487
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...
Persistent link: https://www.econbiz.de/10011263885