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Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts

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  • Adrian C. H. Lei

Abstract

This study examines the effects of the Mandatory Call Events (MCEs) of Callable Bull/Bear Contracts (CBBCs) on the underlying stocks. The recent development of CBBCs in Hong Kong creates a unique opportunity to study this new derivative instrument. There are significant abnormal returns and volumes around MCEs. The substantial amount of price reversal after MCEs in both interday and intraday results supports the notion of stock price manipulation. Also, a greater outstanding number of issues in the market increases the chance of MCEs. We also show that the abnormal volume leads to the abnormal returns around MCEs, implying that abnormal trading activities can cause MCEs. This article shows that a market with a substantial amount of touch‐and‐out options trading may induce manipulation of the underlying stocks. Our study suggests that restricting issuers from unwinding hedged positions before the termination of exchange‐traded barrier options could improve investors' protection. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:1042–1066, 2015

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  • Adrian C. H. Lei, 2015. "Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(11), pages 1042-1066, November.
    • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:11:p:1042-1066
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