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Does options listing impact on the time-varying risk characteristics of the underlying stocks? Evidence from NYSE stocks listed on the CBOE

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  • Khelifa Mazouz
  • Michael Bowe

Abstract

This article extends Mayhew and Mihov (2004) and Mazouz (2004) by investigating if either the (time-varying) systematic or diversifiable risk of a NYSE-traded stock is impacted when its option is listed on the Chicago Board Option Exchange (CBOE). We employ a Kalman Filter to estimate time-varying betas, and apply a GARCH(1,1) process on the one-step-ahead forecast error to estimate conditional diversifiable risk. An individual stock approach rather than the customary portfolio approach is adopted. A control sample accommodates possible risk changes resulting from the endogenous nature of the exchange's option listing decision, and the potential impact of changes in market- and industry-wide conditions. The evidence indicates that option listing has no significant predictable impact on either risk characteristic.

Suggested Citation

  • Khelifa Mazouz & Michael Bowe, 2009. "Does options listing impact on the time-varying risk characteristics of the underlying stocks? Evidence from NYSE stocks listed on the CBOE," Applied Financial Economics, Taylor & Francis Journals, vol. 19(3), pages 203-212.
  • Handle: RePEc:taf:apfiec:v:19:y:2009:i:3:p:203-212
    DOI: 10.1080/09603100801964396
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    References listed on IDEAS

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