Options Trading and Stock Price Informativeness

65 Pages Posted: 18 Jun 2019 Last revised: 30 Apr 2020

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: April 30, 2020

Abstract

We find that single-name options trading increases the absolute level of information content of prices (stock price informativeness). We confirm our results through instrumental variable approach to control for potential endogeneity. We further show causality by using a difference-in-difference approach using regulatory changes as an exogenous shock on equity options trading volume. Our findings are through the channels of investors’ acquiring more information and through managers’ information disclosure. The findings are driven by firms with higher information asymmetry and firms with more efficiently priced options. Options listings in a sample of 25 other countries 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 (April 30, 2020). 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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