Abstract
This paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset. We argue that the leverage properties of options induce a higher level of informed trading in the aggregate market (underlying plus derivative), resulting in excess listing-day price movements in the newly optioned equity. Using an alternative dataset, our results suggest that this may be an explanation for the observed positive than negative excess listing-day returns of US optioned stocks over the past thirty years.
Original language | English |
---|---|
Pages (from-to) | 1359-1384 |
Number of pages | 26 |
Journal | Journal of Banking and Finance |
Volume | 29 |
Issue number | 6 |
DOIs | |
Publication status | Published - Jun 2005 |
Externally published | Yes |