Publication Type
Journal Article
Version
submittedVersion
Publication Date
5-2018
Abstract
Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option listing standards. The benefits are more prominent for stocks with active options trading and opaque stocks. The reduction of information risk is larger for good news than bad news, and the stock price response to earnings surprise weakens after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading.
Keywords
Options, Option listing, information asymmetry, probability of informed trading, price efficiency
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Review of Finance
Volume
22
Issue
3
First Page
1153
Last Page
1194
ISSN
1572-3097
Identifier
10.1093/rof/rfx015
Publisher
Oxford University Press (OUP): Policy F - Oxford Open Option D
Citation
HU, Jianfeng.
Option listing and information asymmetry. (2018). Review of Finance. 22, (3), 1153-1194.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5308
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1093/rof/rfx015