Econometric Modeling: Capital Markets - Asset Pricing eJournal  ·  2017  ·  Impact 3

ABSTRACT
Option listing significantly increases both informed and uninformed trading in a sample of 1517 common stocks in the US between 2001 and 2010. Although the average increase of informed trading reaches 12.4%, uninformed trading increases even more by 23.9%, reducing relative information risk. The causal effects of option listing are established using a control sample of stocks with similar propensities of listing, are robust in subsamples of stocks, and are confirmed by a quasi-natural experiment using option listing standards. A placebo test shows that options on exchange-traded-funds increase only uninformed trading. Information in the order flow is incorporated more quickly into prices after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading. The benefits are more prominent for stocks with active options trading, and opaque and illiquid stocks.

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impact factor3
year_of_publication2017
sourceEconometric Modeling: Capital Markets - Asset Pricing eJournal

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