Options Trading and Stock Price Informativeness

Swiss Finance Institute Research Paper No. 19-74

Journal of Financial and Quantitative Analysis (JFQA), accepted

42 Pages Posted: 18 Jun 2019 Last revised: 13 Jan 2023

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

California State University, Long Beach

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: December 10, 2022

Abstract

We document the causal effects of single-name options trading on the absolute level of information content of prices (stock price informativeness) by exploiting the Penny Pilot Program as an exogenous shock to options trading volume. We find that options trading increases underlying stock price informativeness and information acquisition by both option and stock investors, consistent with the framework of Goldstein and Yang (2015). The findings are driven by firms for which options are more important sources for information and firms with more efficiently priced options. Options market introduction in a sample of 25 other economies also leads 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 (December 10, 2022). Swiss Finance Institute Research Paper No. 19-74, Journal of Financial and Quantitative Analysis (JFQA), accepted, 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

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

HOME PAGE: http://https://sites.google.com/site/saikefinance/

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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