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Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review

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  • Hiremath, Gourishankar S

Abstract

The effect of options’ introduction on underlying market is one of the frequently debated themes in financial research. A significant body of literature addresses the question of effects of options’ introduction. The critical review of the literature shows that there is no consensus among scholars regarding the impact. Theoretically, it has been argued that the option market stabilizes the underlying market. Though the empirical evidences of stabilization effect have not lead to a consensus, but there is little evidence for the destabilization effect of options. Given increasing growth of options in financial market especially in emerging markets, the future studies from these markets may shed new light on the debate.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:46512
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    References listed on IDEAS

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    Cited by:

    1. Dannemann, Tebbe & Prehn, Soren & Brümmer, Bernhard, 2014. "Optionshandel Und Maispreisvolatilitat: Does the Tail Wag the Dog?," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187371, German Association of Agricultural Economists (GEWISOLA).

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    More about this item

    Keywords

    Derivatives; Options; Price impact; volatility; destabilization; market efficiency; effects of derivatives;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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