The Effect of Single Stock Derivative Listings on Underlying Returns, Volume and Market Completeness

34 Pages Posted: 17 Jun 2019

See all articles by Olfa Belhassine

Olfa Belhassine

University of Manouba - ESCT-Business School of Tunis

Chokri Mamoghli

Institut Supérieur de Gestion

Date Written: June 6, 2010

Abstract

This study examines the change of returns on common stocks around the time exchange-traded derivatives (options and futures) are listed on those stocks. It also analyses the impact of derivative introductions on market completeness. Two emergent markets are considered: India and Taiwan. We propose the use of event study based on GLS regression to test market completeness hypothesis. The evidence indicates that option and future introductions have a positive impact on the underlying stock returns. This effect is either transitory (Taiwan) or persistent until the 10th-day post listing (India). The market completeness hypothesis does not explain the price effect. We also find a significant increase in volume in the three days after the derivative introductions. Finally, the argument explaining the price reaction depends on the market and the way exchanges choose new underlying.

Keywords: derivatives listings, market completeness, price effect, GLS regression, event study, volume effect, traders' anticipations

JEL Classification: G14, G15

Suggested Citation

Belhassine, Olfa and Mamoghli, Chokri, The Effect of Single Stock Derivative Listings on Underlying Returns, Volume and Market Completeness (June 6, 2010). Available at SSRN: https://ssrn.com/abstract=3400040 or http://dx.doi.org/10.2139/ssrn.3400040

Olfa Belhassine (Contact Author)

University of Manouba - ESCT-Business School of Tunis ( email )

Campus Universitaire de La Manouba
la Manouba, Manouba 2010
Tunisia

Chokri Mamoghli

Institut Supérieur de Gestion ( email )

Campus Universitaire
Le Bardo 2000
Tunis, TN El Manar 2000
Tunisia

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