Complete Markets, Informed Trading and Equity Option Introductions

35 Pages Posted: 23 Jul 2003

See all articles by Robert W. Faff

Robert W. Faff

University of Queensland

David Hillier

University of Strathclyde - Department of Accounting and Finance

Date Written: February 28, 2003

Abstract

This paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset. In contrast to earlier research that has failed to explain the flipping of positive excess returns to negative excess returns on the listing date over the past thirty years for US optioned stocks, we find using an alternative dataset, strong evidence to suggest that an influx of informed traders in the option market has been a major factor in the equity price changes associated with option listing.

Keywords: options, complete markets, informed trading, short sales

JEL Classification: G12, G14

Suggested Citation

Faff, Robert W. and Hillier, David, Complete Markets, Informed Trading and Equity Option Introductions (February 28, 2003). EFA 2003 Annual Conference Paper No. 507. Available at SSRN: https://ssrn.com/abstract=424402 or http://dx.doi.org/10.2139/ssrn.424402

Robert W. Faff (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

David Hillier

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 330 4809 (Phone)
44 0141 330 4442 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
192
rank
154,779
Abstract Views
1,140
PlumX Metrics