Abstract

http://ssrn.com/abstract=519044
 
 

References (41)



 
 

Citations (25)



 


 



Stock Price Clustering on Option Expiration Dates


Sophie X. Ni


Hong Kong University of Science and Technology

Neil D. Pearson


University of Illinois at Urbana-Champaign - Department of Finance

Allen M. Poteshman


University of Illinois at Urbana-Champaign - Department of Finance

August 27, 2004

AFA 2005 Philadelphia Meetings

Abstract:     
This paper presents striking evidence that option trading changes the prices of underlying stocks. In particular, we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices. On each expiration date, the returns of optionable stocks are altered by an average of at least 16.5 basis points, which translates into aggregate market capitalization shifts on the order of $9 billion. We provide evidence that hedge re-balancing by option market-makers and stock price manipulation by firm proprietary traders contribute to the clustering.

Number of Pages in PDF File: 53

Keywords: Stock price clustering, Option expiration, Hedging, Manipulation

JEL Classification: G12, G13, G24

working papers series


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Date posted: March 22, 2004  

Suggested Citation

Ni, Sophie X. and Pearson, Neil D. and Poteshman, Allen M., Stock Price Clustering on Option Expiration Dates (August 27, 2004). AFA 2005 Philadelphia Meetings. Available at SSRN: http://ssrn.com/abstract=519044 or http://dx.doi.org/10.2139/ssrn.519044

Contact Information

Sophie Xiaoyan Ni
Hong Kong University of Science and Technology ( email )
Clearwater Bay
Kowloon
Hong Kong
852-2358 5052 (Phone)
HOME PAGE: http://sophiexni.googlepages.com
Neil D. Pearson
University of Illinois at Urbana-Champaign - Department of Finance ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)
Allen M. Poteshman (Contact Author)
University of Illinois at Urbana-Champaign - Department of Finance ( email )
340 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-265-0565 (Phone)
217-244-3102 (Fax)
HOME PAGE: http://www.business.uiuc.edu/poteshma
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