Top European finance prize won by Accounting and Finance lecturer
Published 17 June 2003
The Federation of European Securities Exchanges has awarded the Josseph de la Vega prize 2003 to Accounting and Finance Lecturer Söhnke Bartram (pictured on the right) and co-author Frank Fehle for their research paper 'Competition among Alternative Option Market Structures: Evidence from Eurex vs. Euwax'.
The winning research observes the successful co-existence of two option markets, namely Eurex and Stuttgart-based Euwax, despite the fact that these two markets offer many options with identical or very similar characteristics.
They analyse this situation and find that the investor clienteles of the two markets differ significantly with respect to their inclination to selling the option before maturity. From this, the authors conclude that option market structure does matter when trying to address different circles of customers. The authors conclude that the creation of markets for options issued by banks (i.e. warrants as these are securitised options) in the US could serve the speculator/informed investor clientele there while at the same time creating healthy competitive pressure on existing markets such as the CBOE. Finally, they hint at the successful regulatory framework for warrants in Germany as a possible example for application in the wider EU context.
The Josseph de la Vega Prize
Each year, the Federation of European Securities Exchanges (FESE), in co-operation with the European Capital Markets Institute (ECMI) invites European researchers, academics, and practitioners to submit research papers for the Josseph de la Vega Prize for outstanding research on the securities markets in Europe.
Competition among Alternative Option Market Structures: Evidence from Eurex vs. Euwaxby Söhnke Bartram and Frank Fehle
We study option market design by providing a theoretical motivation and comprehensive empirical analysis of two fundamentally different option market structures, the Eurex derivatives exchange and Euwax, the world's largest market for bank-issued options. These markets exist side-by-side, offering many options with identical or similar characteristics. We motivate the two market structures based on option investor clienteles which differ with respect to the probability of selling the option back to the dealer/issuer before maturity, which in turn affects the investors expected transaction costs. As suggested by the theoretical explanation, the most important empirical finding is that Euwax ask prices and bid prices are consistently higher than comparable Eurex ask prices and bid prices. The difference of the bid prices is larger, resulting in smaller Euwax bid-ask spreads, which makes Euwax preferable for investors with a high probability of early liquidation. We find that competition from one market reduces bid-ask spreads in the other market.