Option listing and information asymmetry

Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option...

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Bibliographic Details
Main Author: HU, Jianfeng
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2018
Subjects:
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/5308
https://ink.library.smu.edu.sg/context/lkcsb_research/article/6307/viewcontent/oplist.pdf
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Institution: Singapore Management University
Language: English
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Summary:Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option listing standards. The benefits are more prominent for stocks with active options trading and opaque stocks. The reduction of information risk is larger for good news than bad news, and the stock price response to earnings surprise weakens after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading.