Date of Award
1-1-2025
Document Type
Dissertation
Degree Name
Ph.D. in Business Administration
First Advisor
Robert A. Van Ness
Second Advisor
Bonnie F. Van Ness
Third Advisor
Kathleen P. Fuller
School
University of Mississippi
Relational Format
dissertation/thesis
Abstract
The first essay examines how short-term order imbalances and multi-leg options trading affect single-leg price improvement auctions in the U.S. equity options market. Using October 2022 data, we find that larger order imbalances reduce both the frequency of auctions and their price improvement benefits, suggesting that market makers provide higher price improvement only when order flows are less correlated. We also find evidence that increased multi-leg trading reduces market-maker incentives to hold additional single-leg auctions or offer higher price improvements in single-leg auctions. We show that auctions on exchanges without preferential designated market maker priority rules more often attract multiple bidders, highlighting how market structure shapes competition in auctions.
The second essay examines Exercise Boundary Violations (EBVs) in the U.S. options market, where the best available bid in in-the-money options fall below intrinsic value, violating classic arbitrage bounds. Using intraday data, we show that EBV quotes also arise from market maker inventory pressures. Additionally, we find that liquidity in options with EBV bids is largely from market makers and broker-dealers, whereas professional customers are more likely to submit bids that match or exceed intrinsic value following a trade under EBV quotes. Within the electronic continuous market, market-maker purchases of in-the-money option series are linked to a lower likelihood of EBV trades but this association reverses in electronic auction trading mechanism and for large orders executed on the floor.
The third essay examines the effects of Nasdaq’s 2019 odd-lot aggregation rule, which allows odd-lot orders at multiple price levels to be combined and displayed as protected quotations. We find that price-setting odd-lot aggregations are relatively uncommon, representing less than 1.59% of stock-day average trades and 1.01% of stock-day average volume. However, their prevalence increases monotonically with stock price, reaching 10.88% of trades and 7.89% of volume in the highest price bucket. Despite their infrequency, price-setting aggregations are informative and contribute disproportionately to price discovery. Our results suggest that while the policy enhances transparency and price discovery, the aggregate depth of odd-lot orders on Nasdaq Stock Market that is better than the National Best Bid and Offer is usually insufficient to meaningfully alter displayed liquidity or trading outcomes except in the highest-priced securities.
Recommended Citation
Adeniyi, Reuben Adedapo, "Essays on Stock Option Auctions, Mispricing and Odd-Lot Aggregation in Equity Markets" (2025). Electronic Theses and Dissertations. 3222.
https://egrove.olemiss.edu/etd/3222