The Impact of Option Introduction on Real Estate Investment Trusts

29 Pages Posted: 24 Jan 2011

See all articles by Dean Diavatopoulos

Dean Diavatopoulos

Seattle University

Andy Fodor

Ohio University

Shawn D. Howton

Villanova University - Department of Finance

Shelly Howton

Villanova University - School of Business

Date Written: January 21, 2011

Abstract

This paper examines the impact of option introduction on the returns, volatility, and volume of shares traded of the Real Estate Investment Trusts (REITs) that underlie the new derivative securities. The paper looks at both the initial and then longer term impact on each of these variables and then compares the impact to what previous research finds when options are introduced on non-REIT equities. We find evidence of an initial decline in price when option introduction is announced and also find significant negative returns over a longer post-announcement period. There is not a significant change in volatility at option introduction but we do find a significant increase in trading volume. We find that in most of the areas examined, REITs have a similar reaction to option introduction as do non-REIT equities.

Keywords: REIT, Options, Returns, Volatility

JEL Classification: G11, G14

Suggested Citation

Diavatopoulos, Dean and Fodor, Andy and Howton, Shawn D. and Howton, Shelly W., The Impact of Option Introduction on Real Estate Investment Trusts (January 21, 2011). Available at SSRN: https://ssrn.com/abstract=1745251 or http://dx.doi.org/10.2139/ssrn.1745251

Dean Diavatopoulos

Seattle University ( email )

901 12th Avenue
Seattle, WA 98122
United States

Andy Fodor

Ohio University ( email )

514 Copeland Hall
Athens, OH 45701
United States
740.593.0259 (Phone)

Shawn D. Howton (Contact Author)

Villanova University - Department of Finance ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States

Shelly W. Howton

Villanova University - School of Business ( email )

Dept. of Finance
Villanova, PA 19085
United States
610-519-6111 (Phone)
610-519-6881 (Fax)

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