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Zhiping Zhou

is a Ph.D. candidate in Finance at Bocconi University since 2010. He received an M.A. from Wuhan University and served as a researcher in Center for Regional Economics Research at Wuhan University. He was a winner in the contest of National Mathematical Olympiad (China, 2001). His research interests are in empirical asset pricing, particuarly in the term structure of corporate credit risk and macroeconomic dynamics. He also focuses on the effects of the funding liquidity on the index option market liquidity. During the past three years, he served as a referee for several international journals, such as Quantitative Finance, Quarterly Review of Economics and Finance.

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From Funding Liquidity to Market Liquidity: Evidence from Index Option Market (coauthor: Chunbo Liu)

This study examines the relationship between funding liquidity and market liquidity using daily data of S&P 500 index option market covering January 2003 - January 2012. We find that option market liquidity is positively correlated with funding liquidity during the periods of high market uncertainty. Besides, we document a positive relationship between option market liquidity and VIX. We also split the whole sample into two sub-samples of pre- and post- August 2007. Consistent with the theoretical predictions of Brunnermeier and Pedersen (2009), we find that when funding liquidity is low, option market liquidity becomes sensitive to changes in funding liquidity and tends to decline with funding liquidity. This study also uncovers several important features of the index option market liquidity. First, the impact of funding liquidity on puts liquidity is much higher than that on calls. Second, investors are inclined to trade short maturity options during the great recession and their liquidity is sensitive to funding liquidity.

Last modified: 2018.11.30.