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How Do Exchanges Select Stocks for Option Listing?

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Author Info

  • Stewart Mayhew
  • Vassil Mihov

Abstract

We investigate the factors influencing the selection of stocks for option listing. Exchanges tend to list options on stocks with high trading volume, volatility, and market capitalization, but the relative effect of these factors has changed over time as markets have evolved. We observe a shift from volume toward volatility after the moratorium on new listings ended in 1980. Using control sample methodology designed to correct for the endogeneity of option listing, we find no evidence that volatility declines with option introduction, in contrast to previous studies that do not use control samples. Copyright 2004 by The American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 59 (2004)
Issue (Month): 1 (02)
Pages: 447-471

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Handle: RePEc:bla:jfinan:v:59:y:2004:i:1:p:447-471

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Citations

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Cited by:
  1. Badreddine, Sina & Galariotis, Emilios C. & Holmes, Phil, 2012. "The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 589-608.
  2. Alejandro Bernales & Massimo Guidolin, 2013. "The Effects of Information Asymmetries on the Success of Stock Option Listings," Working Papers 484, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Adam B. Ashcraft & João A. C. Santos, 2007. "Has the credit derivatives swap market lowered the cost of corporate debt?," Staff Reports 290, Federal Reserve Bank of New York.
  4. Douglas W. Blackburn & William N. Goetzmann & Andrey D. Ukhov, 2009. "Risk Aversion and Clientele Effects," NBER Working Papers 15333, National Bureau of Economic Research, Inc.
  5. George Karathanassis & Vasilios Sogiakas, 2010. "Spill over effects of futures contracts initiation on the cash market: a regime shift approach," Review of Quantitative Finance and Accounting, Springer, vol. 34(1), pages 95-143, January.
  6. : Gi H. Kim, 2013. "Credit Default Swaps, Strategic Default, and the Cost of Corporate Debt," Working Papers wpn13-12, Warwick Business School, Finance Group.
  7. William Arrata & Alejandro Bernales & Virginie Coudert, 2013. "The Effects of Derivatives on Underlying Financial Markets: Equity Options, Commodity Derivatives and Credit Default Swaps," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
  8. Joshua Slive & Jonathan Witmer & Elizabeth Woodman, 2012. "Liquidity and Central Clearing: Evidence from the CDS Market," Working Papers 12-38, Bank of Canada.
  9. Das, Sanjiv & Kalimipalli, Madhu & Nayak, Subhankar, 2014. "Did CDS trading improve the market for corporate bonds?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 495-525.
  10. Ang, James S. & Cheng, Yingmei, 2005. "Single stock futures: Listing selection and trading volume," Finance Research Letters, Elsevier, vol. 2(1), pages 30-40, March.
  11. Gao, Huasheng, 2010. "Optimal compensation contracts when managers can hedge," Journal of Financial Economics, Elsevier, vol. 97(2), pages 218-238, August.
  12. Galina Hale & Joao A. C. Santos, 2008. "Do banks price their informational monopoly?," Working Paper Series 2008-14, Federal Reserve Bank of San Francisco.
  13. Niels C. Thygesen & Robert N. McCauley & Guonan Ma & William R. White & Jakob de Haan & Willem van den End & Jon Frost & Christiaan Pattipeilohy & Mostafa Tabbae & Ernest Gnan & Morten Balling & Paul , 2013. "50 Years of Money and Finance: Lessons and Challenges," SUERF 50th Anniversary Volume - 50 Years of Money and Finance: Lessons and Challenges, SUERF - The European Money and Finance Forum, number 1 edited by Morten Balling & Ernest Gnan.
  14. Ashcraft, Adam B. & Santos, João A.C., 2009. "Has the CDS market lowered the cost of corporate debt?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 514-523, May.
  15. Phillips, Blake, 2011. "Options, short-sale constraints and market efficiency: A new perspective," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 430-442, February.
  16. Lecce, Steven & Lepone, Andrew & McKenzie, Michael D. & Segara, Reuben, 2012. "The impact of naked short selling on the securities lending and equity market," Journal of Financial Markets, Elsevier, vol. 15(1), pages 81-107.
  17. Agyei-Ampomah, Sam & Mazouz, Khelifa, 2011. "The comovement of option listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2056-2069, August.

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