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The Price Effect of the Introduction of Leaps

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  • Holland, Larry C
  • Wingender, John R

Abstract

Previous studies have shown a positive price effect on the underlying security with the introduction of short-term options on an organized exchange. This effect apparently dissipated after the first nine years of the short-term option market because there is a smaller price effect for new options introduced after 1982. A similar positive price effect occurred with the 1990 introduction of long-term options (Long-term Equity Anticipation Securities, or LEAPS), but this effect diminished rapidly in the first nine months of the LEAPS market. The evidence in this research suggests that LEAPS are not redundant assets and offer additional market spanning investment possibilities. Copyright 1997 by MIT Press.

Suggested Citation

  • Holland, Larry C & Wingender, John R, 1997. "The Price Effect of the Introduction of Leaps," The Financial Review, Eastern Finance Association, vol. 32(2), pages 373-389, May.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:2:p:373-89
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    Cited by:

    1. Holden, Craig W. & Lundstrum, Leonard L., 2009. "Costly trade, managerial myopia, and long-term investment," Journal of Empirical Finance, Elsevier, vol. 16(1), pages 126-135, January.
    2. Lundstrum, Leonard L. & Walker, Mark D., 2006. "LEAPS introductions and the value of the underlying stocks," Journal of Financial Intermediation, Elsevier, vol. 15(4), pages 494-510, October.
    3. Guo, Weiyu, 2004. "Some evidence in the trading and pricing of equity LEAPS," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 407-426.
    4. Charles Braymen & John R. Wingender, 2023. "International banking facilities and bank value," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(4), pages 351-377, December.
    5. John R. Wingender, Jr. & Vasant Raval & Samantha J. Schuett, 2015. "The Impact of Balanced Scorecard Hall of Fame Induction Announcement on Firm Value," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 5(1), pages 121-132, December.
    6. Kim, Donghan & Kim, Jun Sik & Seo, Sung Won, 2018. "What options to trade and when: Evidence from seasoned equity offerings," Journal of Financial Markets, Elsevier, vol. 37(C), pages 70-96.

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