Complete Markets, Informed Trading and Equity Option Introductions
35 Pages Posted: 23 Jul 2003
Date Written: February 28, 2003
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: Suggested Citation