Publication Type

Journal Article

Publication Date

3-2017

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

ISSN

1572-3097

Publisher

Oxford University Press (OUP): Policy F - Oxford Open Option D

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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