New Evidence on Price and Volatility Effects of Stock Option Introductions
AbstractThis paper adds to the literature dealing with the effect of derivatives trading on underlying securities by examining option listings from the Netherlands. The effects on both stock returns and volatility are investigated using three types of samples, namely, listing of call options alone, simultaneous listings of both call and put options, and listings of put options alone. A significant decline in stock price is observed with the introduction of option trading. But, no significant effect takes place on the volatility of underlying stocks. Although the evidence is in sharp contrast to the so-called “established view”, it is consistent with recent studies.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-37.
Date of creation: 1997
Date of revision:
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Web page: http://center.uvt.nl
Option listing; derivatives; stock price; stock volatility;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Raman Kumar & Atulya Sarin & Kuldeep Shastri, 1998. "The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 53(2), pages 717-732, 04.
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "Modeling and Simulation of an Artificial Stock Option Market," Computational Economics, Society for Computational Economics, vol. 32(1), pages 37-53, September.
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