IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v9y1997i2p165-80.html
   My bibliography  Save this article

The Effect of Option Listing on Bid-Ask Spreads, Price Volatility, and Trading Activity of the Underlying OTC Stocks

Author

Listed:
  • Wei, Peihwang
  • Poon, Percy S
  • Zee, Susan

Abstract

This paper examines the changes in spreads, price volatility, and trading activity surrounding option listing for a sample of 144 OTC stocks. For this sample, both price volatility and volume increase, but the evidence on spreads is mixed. The increase in price volatility is attributed primarily to an increase in residual return variances. Furthermore, price volatility increases even after controlling for volume, insider trading, and spreads. Although these variables do not fully explain the causes for the increase in price volatility after option listing, the results suggest that liquidity trading or volume has a stronger effect on price volatility than inside trading. This study also finds that both the number of trades and institutional holdings show substantial increases, which are supportive of the notion that listing of options on OTC stocks attracts more attention. Copyright 1997 by Kluwer Academic Publishers

Suggested Citation

  • Wei, Peihwang & Poon, Percy S & Zee, Susan, 1997. "The Effect of Option Listing on Bid-Ask Spreads, Price Volatility, and Trading Activity of the Underlying OTC Stocks," Review of Quantitative Finance and Accounting, Springer, vol. 9(2), pages 165-180, September.
    • Handle: RePEc:kap:rqfnac:v:9:y:1997:i:2:p:165-80
    as

    Download full text from publisher

    File URL: http://journals.kluweronline.com/issn/0924-865X/contents
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. Leonard L. Lundstrum, 2016. "Option listing: market quality revisited," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 565-578, October.
    4. Guenther-Luebbers, Welf & Henke, Soren & Theuvsen, Ludwig, 2012. "Management of Volatility in the Grain Market," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122548, European Association of Agricultural Economists.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:9:y:1997:i:2:p:165-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.