How Does Option Listing Affect Underlying Stock Efficiency? Evidence from a Duration Model

39 Pages Posted: 29 Nov 2012

See all articles by Kaouther Jouaber-Snoussi

Kaouther Jouaber-Snoussi

Université Paris Dauphine

Rim Tekaya

Université Paris Dauphine

Date Written: November 27, 2012

Abstract

We empirically investigate the effect of option listing on the underlying stock efficiency by examining the stock price duration dynamic and the informed trading activity around option listing. We use univariate tests and extended Log-ACD models that account for liquidity. Despite a significant increase in the price duration, option listing seems not to deteriorate the underlying stock efficiency. The results reject a permanent change in the informed trading activity but suggest a positive intraday seasonal impact. However, this result is not confirmed for low volume stocks. Furthermore, Euronext and Liffe merger in 2002 seems to have an impact on the duration process and the efficiency of underlying stocks.

Keywords: Option listing, Efficiency, Price duration, Log-ACD model, Liquidity, Informed trading

JEL Classification: C12, C13, C41, C51, G14

Suggested Citation

Jouaber-Snoussi, Kaouther and Tekaya, Rim, How Does Option Listing Affect Underlying Stock Efficiency? Evidence from a Duration Model (November 27, 2012). Available at SSRN: https://ssrn.com/abstract=2181391 or http://dx.doi.org/10.2139/ssrn.2181391

Kaouther Jouaber-Snoussi (Contact Author)

Université Paris Dauphine ( email )

France

Rim Tekaya

Université Paris Dauphine ( email )

Paris

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