Options Listing, Market Liquidity and Stock Behaviour: Some Canadian Evidence

Abstract

This study examines the price behaviour, trading volume and liquidity of stocks in the Canadian market at the time of options listing. Unlike some studies examining similar effects in the United States, the present one finds no evidence to indicate that either daily return volatility or trading volume is affected by the listing. Similarly, liquidity, as measured by the bid‐ask spread, is unaffected. At the same time, cross‐sectional tests indicate an inverse relationship between before‐to‐after trading volume and the before‐to‐after bid‐ask spread.

Option initiation and underlying market behavior: Evidence from Norway

“…Although early studies performed by e.g., Trennepohl and Dukes (1979) and Klemkosky and Maness (1980), did not support these findings, their results have been explained by some methodological deficiencies [see, e.g., Damodaran and Subrahmanyam (1992)l. The results of the U.K. study by Watt, Yadav, and Draper (1992) coincide with evidence from U.S. markets; but Chamberlain, Cheung, and Kwan (1993) could not find any significant change in either the systematic or the total risk of Canadian stocks.…”

“…Skinner (1989) 1979. Chamberlain, Cheung, andKwan (1993) could not reveal any significant changes in the Canadian markets, although a gradual increase in trading volume appeared to occur in the post-listing period on an unadjusted and on a market-adjusted basis. Neal (1 987) provided evidence that bid-ask spreads of the underlying stock decrease after option listing.…”

Margin Requirements, Volatility, and Market Integrity: What Have We Learned Since the Crash?

“…4 The Congress evidently believed that a federal margin policy could be used to control the amount of credit allocated to \unproductive" investment in the stock market and thereby reduce the eects of destabilizing speculation on stock prices. The view prevailing in Congress held that there existed a xed pool of credit available to support investment activities, and any credit that was used to purchase stocks was credit that was unavailable to nance productive investments in new plant and equipment.…”

Market risk and the concept of fundamental volatility: Measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets

“…In addition, option trading seems to make the underlying asset adjust more rapidly to new information, and trading volume tends to be increased by option trading. Chamberlain, Cheung and Kwan (1993) and Gjerde and Saettem (1995) report little change in underlying asset volatility.…”

“…see Trennepohl and Dukes (1979), Skinner (1989), Conrad (1989), Detemple and Jorion (1990), Damodaran and Lim (1991), Haddad and Voorheis (1991), Watt, Yadav and Draper (1992), Chamberlain, Cheung and Kwan (1993), and Gjerde and Saettem (1995) 20 .…”