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Equity Option Listing and Underlying Market Quality: Evidence from a Price Duration Model

Author

Listed:
  • Kaouther Jouaber-Snoussi

    (Paris-Dauphine, PSL Research University, CNRS, DRMFinance)

  • Rim Tekaya

    (Time Higher School, Tunis)

Abstract

We empirically investigate the effect of option listing on the underlying stock market quality by examining the stock price duration dynamic, the liquidity and the informed trading activity around option listing. We use trade-to-trade data accounting for intraday seasonality and find evidence of less frequent trades and higher intraday seasonal liquidity after option listing. Our Log-ACD models, jointly with the informed trading activity results indicate no permanent change in the underlying market quality and reject the hypothesis of a permanent move of informed traders. Our findings suggest that a new arrival of informed traders could occur during the trading day as a seasonal feature. Robustness check tests confirm these results except for the low-volume stocks for which we find evidence of informed traders’ migration. Further tests show that the Euronext and Liffe merger in 2002 had an impact on the duration process and on its informational content.

Suggested Citation

  • Kaouther Jouaber-Snoussi & Rim Tekaya, 2016. "Equity Option Listing and Underlying Market Quality: Evidence from a Price Duration Model," Bankers, Markets & Investors, ESKA Publishing, issue 145, pages 14-25, November-.
    • Handle: RePEc:rbq:journl:i:145:p:14-25
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    More about this item

    Keywords

    Option Listing; Market Quality; Price Duration; Log-ACD Model; Informed Trading;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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