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Option Introduction and Liquidity Changes in the OTC/NASDAQ Equity Market

Author

Listed:
  • Rich Fortin

    (New Mexico State University)

  • Judy Maese

    (New Mexico State University)

Abstract

This paper examines the impact of option listing in the NASDAQ equity market on the bid-ask spread of the underlying stock. We find that both the market adjusted percentage and dollar spreads decrease with option listing, which is consistent with a value enhancing impact of derivative security introduction.

Suggested Citation

  • Rich Fortin & Judy Maese, 1992. "Option Introduction and Liquidity Changes in the OTC/NASDAQ Equity Market," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 2(1), pages 39-52, Fall.
    • Handle: RePEc:pep:journl:v:2:y:1992:i:1:p:39-52
    as

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    References listed on IDEAS

    as
    1. Stoll, Hans R, 1978. "The Pricing of Security Dealer Services: An Empirical Study of NASDAQ Stocks," Journal of Finance, American Finance Association, vol. 33(4), pages 1153-1172, September.
    2. Damodaran, Aswath & Lim, Joseph, 1991. "The effects of option listing on the underlying stocks' return processes," Journal of Banking & Finance, Elsevier, vol. 15(3), pages 647-664, June.
    3. Lamoureux, Christopher G & Sanger, Gary C, 1989. " Firm Size and Turn-of-the-Year Effects in the OTC/NASDAQ Market," Journal of Finance, American Finance Association, vol. 44(5), pages 1219-1245, December.
    4. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    5. Detemple, Jerome & Jorion, Philippe, 1990. "Option listing and stock returns : An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 14(4), pages 781-801, October.
    6. Conrad, Jennifer, 1989. " The Price Effect of Option Introduction," Journal of Finance, American Finance Association, vol. 44(2), pages 487-498, June.
    7. Skinner, Douglas J., 1989. "Options markets and stock return volatility," Journal of Financial Economics, Elsevier, vol. 23(1), pages 61-78, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    NASDAQ ; Nasdaq ; Options; OTC; Liquidity;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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