Option listing and information asymmetry

Publication Type

Working Paper

Publication Date

2014

Abstract

Between 2001 and 2010, US stocks selected for option listing are estimated to experience increases of 16.8% in informed trading and 27.8% in uninformed trading, no significant change in the probability of information events, and a decrease of 11.5% in the probability of informed trading compared to unselected stocks with similar propensities of listing. Dynamic analysis shows the effects mainly come from the first month after listing. A placebo test shows that options on Exchange-Traded-Funds increase only uninformed trading. Options also facilitate incorporation of private information. The results suggest that options improve the overall market information environment.

Discipline

Business

Research Areas

Finance

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