The Effect of Derivative Trading on the Underlying Markets: Evidence from Canadian Instalment Receipts Trading

28 Pages Posted: 29 Jan 2004

See all articles by Narat Charupat

Narat Charupat

McMaster University - DeGroote School of Business

Abstract

We examine the impact of instalment receipts (IRs) trading on the underlying stocks' volatility. IRs are a derivative security that evidences the purchase of an underlying security on an instalment basis. IRs have been commonly used to facilitate large secondary stock offerings in Canada and other commonwealth countries. We find that the listings of IRs generally increase the underlying stocks' trading volume, but do not have any significant effect on the underlying volatility or systematic risk. Therefore, the use of IRs in secondary offerings will not destabilize the underlying markets and thus will not adversely affect the welfare of the buyers and the remaining shareholders.

Suggested Citation

Charupat, Narat, The Effect of Derivative Trading on the Underlying Markets: Evidence from Canadian Instalment Receipts Trading. Available at SSRN: https://ssrn.com/abstract=495342 or http://dx.doi.org/10.2139/ssrn.495342

Narat Charupat (Contact Author)

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
(905) 525-9140 ext. 23987 (Phone)

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