Stock price response to S&P 500 index inclusions: Do options listings and options trading volume matter?

Yangyang Chen, Constantine Koutsantony, Cameron Truong and Madhu Veeraraghavan

Journal of International Financial Markets, Institutions and Money, 2013, vol. 23, issue C, 379-401

Abstract: This study investigates the stock price response to Standard & Poor's (S&P) 500 index inclusions during the period 1996–2010 and the role of options listings and options trading volume with regard to the information content of index inclusion announcements. Specifically, we address the following questions: (1) Is the magnitude of abnormal returns from the announcements of S&P 500 inclusions significantly lower for stocks with options listings? and (2) Is the magnitude of abnormal returns from the announcements of S&P 500 inclusions significantly lower for stocks with a high level of options trading volume? Our findings indicate that options listings themselves are not related to the magnitude of abnormal returns from the announcements of S&P 500 inclusions. We also find that greater levels of options trading volume do not convey private information about the S&P 500 index changes. We document that any measurable impact of options trading on the stock price response to S&P 500 inclusion announcements lies primarily in the level of abnormal options trading volume in the period immediately preceding the announcements.

Keywords: S&P 500 index; Options trading volume; Options listing informational efficiency (search for similar items in EconPapers)
JEL-codes: G10 G12 G19 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:23:y:2013:i:c:p:379-401

DOI: 10.1016/j.intfin.2012.09.008

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