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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.

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