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The comovement of option listed stocks

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  • Agyei-Ampomah, Sam
  • Mazouz, Khelifa

Abstract

This study examines the changes in return comovement around the listing and delisting of stock option contracts. We show that newly option listed stocks experience an increase in comovement with a portfolio of option listed stocks and a decrease in comovement with the portfolio of non-optioned stocks. Similarly, stocks that undergo option delisting exhibit a decrease in comovement with option listed stocks and an increase in comovement with non-optioned stocks. We verify the reliability of our findings in several ways. A matched sample analysis suggests that our results are not driven by factors other than option listing and we find similar results using a calendar-time approach. Further analysis reveals that commonalities in option trading may induce the comovement in the option listed stocks. Overall, our evidence is consistent with the predictions of the category or habitat view of comovement.

Suggested Citation

  • Agyei-Ampomah, Sam & Mazouz, Khelifa, 2011. "The comovement of option listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2056-2069, August.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:8:p:2056-2069
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    Cited by:

    1. Jerry Coakley & George Dotsis & Apostolos Kourtis & Dimitris Psychoyios, 2024. "The S&P 500 index inclusion effect: Evidence from the options market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 1157-1171, January.
    2. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
    3. Do, Hung X. & Nguyen, Lily & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "LGBT policy, investor trading behavior, and return comovement," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 457-483.
    4. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
    5. Do, Hung X. & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "Multinationals and stock return comovement," Global Finance Journal, Elsevier, vol. 52(C).
    6. Do, Hung X. & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "Financial leverage and stock return comovement," Journal of Financial Markets, Elsevier, vol. 60(C).
    7. Alejandro Bernales & Thanos Verousis & Nikolaos Voukelatos & Mengyu Zhang, 2020. "What do we know about individual equity options?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(1), pages 67-91, January.
    8. Mazouz, Khelifa & Mohamed, Abdulkadir & Saadouni, Brahim, 2016. "Stock return comovement around the Dow Jones Islamic Market World Index revisions," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 50-62.

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