Premium
An Empirical Reexamination of the Impact of CBOE Option Initiation on the Volatility and Trading Volume of the Underlying Equities: 1973–1986
Author(s) -
Bansal Vipul K.,
Pruitt Stephen W.,
Wei K. C. John
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00328.x
Subject(s) - volatility (finance) , listing (finance) , binary option , financial economics , economics , volume (thermodynamics) , business , actuarial science , implied volatility , finance , physics , quantum mechanics
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.