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The impact of listing stock options on the underlying securities: the case of Taiwan

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  • Dar-Hsin Chen
  • Po-Hsun Chang

Abstract

Based on the asymmetric information and complete market hypotheses, this article attempts to explain the impact of listing stock options on the abnormal return, volatility, trading volume and market depth of the underlying securities in Taiwan. The empirical results find that positive abnormal returns exist, the degree of volatility decreases, trading volume increases and market depth also increases following the introduction of the stock options. The empirical results for the sub-sample are found to be consistent with those for the full sample, but not all parameters are significant. It appears that the Taiwan stock market has become more efficient, and ever since the stock options were introduced information has been disseminated more rapidly due to the investors' self-interested behaviour.

Suggested Citation

  • Dar-Hsin Chen & Po-Hsun Chang, 2008. "The impact of listing stock options on the underlying securities: the case of Taiwan," Applied Financial Economics, Taylor & Francis Journals, vol. 18(14), pages 1161-1172.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:14:p:1161-1172
    DOI: 10.1080/09603100701537714
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    References listed on IDEAS

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    Cited by:

    1. George Filis & Christos Floros & Bruno Eeckels, 2011. "Option listing, returns and volatility: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1423-1435.
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    3. Sui, Cong & Lung, Peter & Yang, Mo, 2021. "Index option trading and equity volatility: Evidence from the SSE 50 and CSI 500 stocks," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 60-75.
    4. Hiremath, Gourishankar S, 2009. "Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review," MPRA Paper 46512, University Library of Munich, Germany.

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