Options Trading and Stock Price Informativeness

67 Pages Posted: 18 Jun 2019 Last revised: 15 Mar 2022

See all articles by Jie Cao

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Sai Ke

University of Houston - C.T. Bauer College of Business

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: March 8, 2022

Abstract

We find that single-name options trading increases the absolute level of information content of prices (stock price informativeness). We show causality by examining the impact of Penny Pilot Program, which exogenously increases the options trading volume of some options. We rationalize our findings under the framework of Goldstein and Yang (2015) and show that informativeness increases through the channel of option and stock investors acquiring more information. The findings are driven by firms with higher information asymmetry and firms with more efficiently priced options. Options market introduction in a sample of 25 other economies also lead to higher price informativeness.

Keywords: option trading, price informativeness, stock synchronicity, information acquisition and production

JEL Classification: G02, G12, G13, G14

Suggested Citation

Cao, Jie and Goyal, Amit and Ke, Sai and Zhan, Xintong, Options Trading and Stock Price Informativeness (March 8, 2022). Swiss Finance Institute Research Paper No. 19-74, Available at SSRN: https://ssrn.com/abstract=3401806 or http://dx.doi.org/10.2139/ssrn.3401806

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong

HOME PAGE: http://sites.google.com/site/jiejaycao

Amit Goyal (Contact Author)

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
Switzerland
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/agoyal/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Sai Ke

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Xintong Zhan

Department of Finance, School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/xintongzhan

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