Options Trading and Stock Price Informativeness

58 Pages Posted: 18 Jun 2019 Last revised: 21 Sep 2021

See all articles by Jie Cao

Jie Cao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Amit Goyal

University of Lausanne; Swiss Finance Institute

Sai Ke

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

Xintong Zhan

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: July 30, 2021

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 (July 30, 2021). 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 Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, NT
Hong Kong
(852) 3943 7757 (Phone)
(852) 2603 6586 (Fax)

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

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
Shatin, NT
Hong Kong
(852) 3943-4179 (Phone)

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

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