Voting Rights and the Delayed Stock Price Response to Option Information

48 Pages Posted: 26 Feb 2021

See all articles by Gang Li

Gang Li

Hong Kong Polytechnic University

Linti Zhang

Hong Kong Polytechnic University, School of Accounting and Finance

Shaojun Zhang

Hong Kong Polytechnic University

Date Written: December 21, 2020

Abstract

Recent studies find that transactions volume and volatility spread of exchange-traded single-stock options predict the underlying stock’s future returns. Most of the firms with exchange-traded options have large market capitalization and are actively traded. It is a puzzle why it takes days and sometimes weeks for stock price to reflect the information contained in option trades. We conjecture that voting rights consideration may contribute to the delayed stock price response to option information. More specifically, we hypothesize that the delay is much longer during the period when shareholder voting is required to resolve contentious corporate matters. We analyze a sample of 1,842 special shareholder meetings between 2003 and 2015 and find that the predictability of option volume and volatility spread is much stronger in the weeks around special shareholder meetings (i.e., the event window). The Fama-MacBeth regression analysis shows that while the predictability of volatility spread is significant both within and outside the event window, the predictability of option volume is significant only within the event window. We contribute to the literature by offering a new explanation of the delayed stock price response to option information and documenting a significant asset pricing effect of voting rights.

Keywords: Implied volatility spread, Option to stock volume ratio, Special shareholder meeting, Value of voting right

JEL Classification: G12, G13, G17

Suggested Citation

Li, Gang and Zhang, Linti and Zhang, Shaojun, Voting Rights and the Delayed Stock Price Response to Option Information (December 21, 2020). Available at SSRN: https://ssrn.com/abstract=3752586 or http://dx.doi.org/10.2139/ssrn.3752586

Gang Li

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Linti Zhang

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

Hung Hom
Kowloon
Hong Kong

Shaojun Zhang (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

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