Listing of put options: Is there any volatility effect?

Mohammed Chaudhury and Said Elfakhami

Review of Financial Economics, 1997, vol. 6, issue 1, 57-75

Abstract: This paper examines the effects of Canadian put option listings on the volatility of the underlying stocks. It also tests whether the “liquidity hypothesis” can explain the cross‐sectional effect, if any, of option listing. According to this hypothesis, option listing enhances the liquidity of the market for the underlying stock, and should lead to a lower variance for the optioned stock. Our results show that Canadian put options are not redundant when it comes to influencing the volatility of the underlying stocks. The evidence shows a decrease in the beta risk following the listing of put option. The evidence also shows a decrease in the variance following earlier put option listings. Cross‐sectionally, we find indirect support for increased liquidity leading to a variance‐ stabilization effect.

Date: 1997
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https://doi.org/10.1016/S1058-3300(97)90014-8

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:6:y:1997:i:1:p:57-75

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