Yes / This study investigates the trading activity in options and stock markets around informed events
with extreme daily stock price movements. We find that informed agents are more likely to trade
options prior to negative news and stocks ahead of positive news. We also show that optioned
stocks overreact to the arrival of negative news, but react efficiently to positive news. However,
the overreaction patterns are unique to the subsample of stocks with the lowest pre‐event
abnormal option/stock volume ratio (O/S). This finding suggests that the incremental benefit of
option listing is related to the level of option trading activity, over and beyond the presence of an
options market on the firm’s stock. Finally, we find that the pre‐event abnormal O/S is a better
predictor of stock price patterns following a negative shock than is the pre‐event O/S, implying
that the former may contain more information about the future value of stocks than the latter.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/9534 |
| Date | 2014 August 1929 |
| Creators | Mazouz, Khelifa, Wu, Yuliang, Yin, S. |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Article, Accepted manuscript |
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