The effect of call-option-listing announcement on shareholder wealth

Abstract

This study examines the effect on shareholder wealth of call-option- listing announcements. Using three alternative methods to estimate daily excess returns, significant negative excess returns are found to occur on the announcement date. This is consistent with the hypothesis that existing shareholders view the onset of option tradings as a destabilizing influence on the underlying stock. Additionally, positive excess returns are shown to occur on the day actual tradings begin. This is attributed to the excess demand created by new investors attracted by the expanded risk-return combinations arising from the availability of options.