The Effects of Option Introduction on Analyst Coverage and Earnings Estimates

The American Economist, 2010

Posted: 9 Jan 2011

See all articles by Susana Yu

Susana Yu

Iona College

Kishore Tandon

CUNY Baruch College - Zicklin School of Business

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business

Date Written: November 10, 2010

Abstract

Option introduction is associated with increased analyst coverage and a generally enhanced information environment for the underlying stocks. We hypothesize that these effects are more significant for Nasdaq than NYSE/Amex stocks because the Nasdaq stocks that are optioned tend to be smaller, traded less, and receive less analyst attention. Consistent with this, we document larger increases in analyst coverage, larger reductions in earnings forecast error, and more significant improvements in the timeliness of reaction to positive earnings announcements for Nasdaq stocks. We conclude that option introduction still has significant beneficial effects on stocks’ trading and informational environment, even in a world where the great majority of large stocks have already been optioned.

Keywords: Option, Analyst Coverage, Earnings Estimates

JEL Classification: G10, G14

Suggested Citation

Yu, Susana and Tandon, Kishore and Webb, Gwendolyn P., The Effects of Option Introduction on Analyst Coverage and Earnings Estimates (November 10, 2010). The American Economist, 2010. Available at SSRN: https://ssrn.com/abstract=1737552

Susana Yu (Contact Author)

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

Kishore Tandon

CUNY Baruch College - Zicklin School of Business ( email )

55 Lexington Avenue
New York, NY 10010
United States
(646) 312-3468 (Phone)
(646) 312-3451 (Fax)

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business ( email )

Department of Economics & Finance
P.O. Box B13-289 1 Bernard Baruch Way
New York, NY 10010
United States
646-312-3485 (Phone)

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