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Option Introductions and the Skewness of Stock Returns

Benjamin Blau () and Ryan Whitby ()

Journal of Futures Markets, 2017, vol. 37, issue 9, 892-912

Abstract: The decision to introduce options for stocks is made by exchanges with the intention of selecting stocks that will generate the most option trading activity. This study hypothesizes that exchanges will introduce options for stocks with positive skewness. The motivation for our tests is based on the idea that some investors have preferences for skewness and the payoff structure of options is conducive to these types of preferences. Results show that the likelihood of introducing options is increasing in the level of return skewness. We also find that stocks with the most pre‐introduction skewness generate the most post‐listing option volume. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:892–912, 2017

Date: 2017
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Handle: RePEc:wly:jfutmk:v:37:y:2017:i:9:p:892-912