Does options improve the information absorption? Evidence from the introduction of weekly index options

Abstract

This paper empirically examines the effect of weekly options introduction on the benchmark index of Indian stock market, NIFTY50. The paper evaluates the possible stabilizing or destabilizing nature of impact on underlying volatility focusing on the relation between information and volatility using GARCH framework. The results indicate that the onset of weekly index options has improved the information assimilation and reduced the persistence of old information on volatility. Further, similar changes are not evident on a control index, NIFTY NEXT50. Overall, the results indicate an increase in market efficiency with weekly index options trading.

The Efficiency of Weekly Option Prices around Earnings Announcements

“…These prior studies were unable to study weekly options because their sample periods all ended prior to a significant number of firms having weekly options. Prior research on weekly options largely focuses on indices rather than individual stocks (e.g., Andersen et al 2017;Oikonomou et al 2019;Jain and Kotha 2022). The few studies that examine weekly options on individual stocks do not examine earnings announcements or straddle returns (e.g., Wen 2020;Bryzgalova et al 2022).…”