Complete markets, informed trading and equity option introductions

Faff, Robert and Hillier, David (2005) Complete markets, informed trading and equity option introductions. Journal of Banking and Finance, 29 6: 1359-1384. doi:10.1016/j.jbankfin.2004.04.009

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Author Faff, Robert
Hillier, David
Title Complete markets, informed trading and equity option introductions
Journal name Journal of Banking and Finance   Check publisher's open access policy
ISSN 0378-4266
Publication date 2005-06
Year available 2004
Sub-type Article (original research)
DOI 10.1016/j.jbankfin.2004.04.009
Volume 29
Issue 6
Start page 1359
End page 1384
Total pages 26
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Formatted abstract
This paper proposes and tests a new hypothesis concerning the price impact of option introductions on the underlying asset. We argue that the leverage properties of options induce a higher level of informed trading in the aggregate market (underlying plus derivative), resulting in excess listing-day price movements in the newly optioned equity. Using an alternative dataset, our results suggest that this may be an explanation for the observed positive than negative excess listing-day returns of US optioned stocks over the past thirty years.
© 2004 Elsevier B.V. All rights reserved.
Keyword Options
Complete markets
Informed trading
Short sales
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: ERA 2012 Admin Only
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 6 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 15 times in Scopus Article | Citations
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Created: Tue, 08 Mar 2011, 12:16:59 EST by Karen Morgan on behalf of UQ Business School