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The Effect of Option Trading at the DTB on the Underlying Stocks' Return Variance

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  • Heer, Burkhard
  • Trede, Mark
  • Wahrenburg, Mark

Abstract

The effects of option trading at the DTB on the variance of the underlying stocks are examined. We use a new distribution free test being based on the empirical distribution functions. The evidence indicates that stock return variance increased after the introduction of the DTB. This effect can be partly explained by the strong increase in trading volume for option listed stocks. Our results stand in stark contrast to prior studies of both American and European financial markets.

Suggested Citation

  • Heer, Burkhard & Trede, Mark & Wahrenburg, Mark, 1997. "The Effect of Option Trading at the DTB on the Underlying Stocks' Return Variance," Empirical Economics, Springer, vol. 22(2), pages 233-245.
    • Handle: RePEc:spr:empeco:v:22:y:1997:i:2:p:233-45
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    Cited by:

    1. Jahangir Sultan, 2012. "Options on federal funds futures and interest rate volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(4), pages 330-359, April.
    2. Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "Modeling and Simulation of an Artificial Stock Option Market," Computational Economics, Springer;Society for Computational Economics, vol. 32(1), pages 37-53, September.
    3. Eunpyo Hong & Min C. Park & Tao‐Hsien Dolly King, 2023. "The effect of option listing on financing decisions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 858-891, March.
    4. Sui, Cong & Lung, Peter & Yang, Mo, 2021. "Index option trading and equity volatility: Evidence from the SSE 50 and CSI 500 stocks," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 60-75.

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