The impact of listing stock options on the underlying securities: the case of Taiwan

Dar-Hsin Chen and Po-Hsun Chang

Applied Financial Economics, 2008, vol. 18, issue 14, 1161-1172

Abstract: Based on the asymmetric information and complete market hypotheses, this article attempts to explain the impact of listing stock options on the abnormal return, volatility, trading volume and market depth of the underlying securities in Taiwan. The empirical results find that positive abnormal returns exist, the degree of volatility decreases, trading volume increases and market depth also increases following the introduction of the stock options. The empirical results for the sub-sample are found to be consistent with those for the full sample, but not all parameters are significant. It appears that the Taiwan stock market has become more efficient, and ever since the stock options were introduced information has been disseminated more rapidly due to the investors' self-interested behaviour.

Date: 2008
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DOI: 10.1080/09603100701537714

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