How Does Option Listing Affect Underlying Stock Efficiency? Evidence from a Duration Model
39 Pages Posted: 29 Nov 2012
Date Written: November 27, 2012
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
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