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The Effect of Option listing on the Underlying Stock Volume Volatility Relation : A Study of French Underlying Stock Efficiency

Jouaber, Kaouther; Tekaya, Rim (2009-12), The Effect of Option listing on the Underlying Stock Volume Volatility Relation : A Study of French Underlying Stock Efficiency, Southwestern Society of Economists Conference, 2010-03, Dallas, États-Unis

Type
Communication / Conférence
Date
2009-12
Conference title
Southwestern Society of Economists Conference
Conference date
2010-03
Conference city
Dallas
Conference country
États-Unis
Metadata
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Author(s)
Jouaber, Kaouther
Tekaya, Rim
Abstract (EN)
We empirically investigated the impact of option listing on the underlying stock efficiency by looking at the volume-volatility relation. We use a time-consistent bivariate VAR (Vector Autoregressive Regression) model that accounts for time duration between trades. Post-listing and pre-listing model results are compared over a sample including 34 stocks for which options were newly listed between 1996 and 2006. Despite a significant rise of raw and diurnally adjusted price durations, a positive impact on the underlying stock volume-volatility relation attributable to option listing is found. This better adjustment to new information is observable jointly on contemporaneous and delayed relation. However, when decomposing volatility into informed and non-informed components, no migration of informed traders to the underlying stock market after option listing is documented. Furthermore, Euronext and Liffe merger in 2002 as a structural change in market conditions seems to have an impact on the duration process and on the informational content of underlying stocks. In addition, our results support that listing options for low volume stocks lead to a decrease in adjustment of volume to volatility.
Subjects / Keywords
Option listing; Efficiency; Price duration; Volume; Volatility relation; Bivariate VAR model
JEL
G14 - Information and Market Efficiency; Event Studies; Insider Trading
C51 - Model Construction and Estimation
C41 - Duration Analysis; Optimal Timing Strategies
C12 - Hypothesis Testing: General

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