Article1989

An Empirical Reexamination of the Impact of CBOE Option Initiation on the Volatility and Trading Volume of the Underlying Equities: 1973–1986

Vipul K. Bansal · Stephen W. Pruitt · K.C. John Wei

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Financial Markets and Investment Strategies Stochastic processes and financial applications Financial Risk and Volatility Modeling

Abstract

Abstract This study presents an empirical analysis of the impact of Chicago Board Options Exchange (CBOE) option initiation on the price volatility and trading volume of the underlying equities. Virtually every firm with options listed on the CBOE from April 1973 to June 1986 is included in the empirical tests. The results of the tests strongly suggest that option listing leads to decreases in the total (but not systematic) risk of optioned firms. Although total trading volume appears to increase following option listing, securities listed after 1980 show smaller increases in volume than those listed in the early years of option trading.

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References

1986Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures 1976Options and Efficiency 1985Volatility increases subsequent to stock splits: An empirical aberration 1986Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets

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