The Price Effect of Option Introductions: 1973-1992

Posted: 8 Jan 1997

See all articles by Sorin M. Sorescu

Sorin M. Sorescu

Texas A&M University; Adam C. Sinn `00 Department of Finance

Date Written: October 1996

Abstract

I examine the effect of option listings on underlying stock prices during 1973 - 1992. In accordance with previous studies, I find that option listings increase stock prices between 1973 and 1980. While some authors attribute this price increase to market completion, I show that this increase is only temporary, and is more likely attributed to market manipulation. As a result of new federal regulations introduced at the end of 1980, I find no evidence of stock price manipulation for options listed between 1981 and 1992. Surprisingly however, during this later period the price effect of option introductions does not merely vanish, but becomes negative, and remains persistent over the 200 trading days following option listings. A longer term negative effect is documented even for options listed prior to 1980, suggesting that the real price effect of option introductions is negative throughout the entire sample period.

JEL Classification: G12, G18

Suggested Citation

Sorescu, Sorin M., The Price Effect of Option Introductions: 1973-1992 (October 1996). Available at SSRN: https://ssrn.com/abstract=8018

Sorin M. Sorescu (Contact Author)

Texas A&M University ( email )

Mays Business School
College Station, TX 77843
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

Adam C. Sinn `00 Department of Finance ( email )

4218 TAMU
College Station, TX Texas 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://mays.tamu.edu/directory/ssorescu/

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