Option listing and the stock-price response to earnings announcements

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

“…Essentially, for each non-optioned firm, we search the optioned firm sample to find an optioned inclusion that best matches the non-optioned firm by multiple firm characteristics. We follow Mendenhall and Fehrs (1999) and Naiker et al (forthcoming) in employing the matching technique to arrive at 52 matched pairs in our study. Specifically, for each non-optioned inclusion, we require the optioned inclusions to have data on firm characteristics in the pre-inclusion period.…”

Investor Overconfidence and Option Trading

“…Literature suggests that informed investors can trade more effectively in options market [e.g., Jennings and Starks (1986), Mendenhall and Fehrs (1999)]; however, as discussed in the subsection 1.2.2, empirical studies have reached conflicting results on informed trading. For example, Chakravarty et al (2004) find the contribution of option trading to price discovery to be about 17% on average, while Muravyev et al (2012) document no "economically significant price discovery" occurs in the option market.…”

Does options listing impact on the time-varying risk characteristics of the underlying stocks? Evidence from NYSE stocks listed on the CBOE

“…A stock is then rejected as a control if: (i) it already has an exchange traded option contract listed, (ii) an option is subsequently listed within 1 year of the date of the option listing of its 'matched' stock, (iii) it does not have a complete set of 400 daily price observations, (iv) it does not trade on the NYSE. For the remaining potential controls, we follow Mendenhall and Fehrs (1999), and use a ranking approach based on the pre-listing average: size; variance; residual variance; and beta to select the most appropriate control stock for each option-listed stock. The final sample includes 144 stocks.…”