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Abstract

This paper re-examines the evidence on how the listing of options impacts on underlying stock’s volatility by taking into consideration the possible presence of a learning effect, along with the impact of the very endogenous nature of the options listing decision itself. Our analyses are centred on both the portfolio approach as well as the individual stock approach applied on the sample of optioned stocks with a matched control sample. The results show that the individual stock approach yielded accurate results, as it is amenable to both the sign and the statistical significance test of variance change. However, unlike the individual stock approach, the more frequently applied portfolio approach relies more on the sign rather than the statistical significance. Based on these analyses, we found no evidence of the CBOE-option listing effect’s presence on the volatility of the underlying stocks in the New York Stock Exchange.

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