Premium
An Empirical Examination of the Return Volatility‐Volume Relation in Related Markets: The Case of Stock and Options
Author(s) -
Poon Percy S.
Publication year - 1994
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.1540-6288.1994.tb00406.x
Subject(s) - volatility (finance) , stock (firearms) , financial economics , economics , econometrics , heteroscedasticity , volatility smile , implied volatility , non qualified stock option , stock market , restricted stock , mechanical engineering , engineering , paleontology , horse , biology
Abstract This paper empirically examines the impact of option trading on the relation between daily stock return volatility and stock trading volume. For a sample of firms for which options were newly listed on the CBOE from 1982 to 1985, the empirical evidence indicates that there is a structural shift in the relation after option trading is introduced. Also, the findings show that daily stock return volatility is significantly and positively correlated with contemporaneous option volume, but not one‐day lagged option volume. These results suggest that contemporaneous option volume may be an important variable in modelling daily stock return volatility and heteroskedasticity.