Abstract
<p>This research investigates the relation between put option issuing and risk adjusted return in Iran capital market for the period 2002-2016. Because data were not available before 2002, data from the period 2002 to 2016 were studied. All data gathered from Tehran Stock Exchange database the sample include 36 issuing events. The Event Study method was implied for 5 days. The empirical result shows that there is a significant relation between issuing options and abnormal return for the company stock, furthermore there is an approved relation between that abnormal return and stock liquidity, but the relation between option volume and that rerun was not approved.</p>
Highlights
Iranian Put Option (Tabaee Put Option): this contract is a kind of embedded put option which in accordance to regulations governing defined as an option by which the put option of a specified number of underlying shares at the “exercise price” determined in the “Issuing Announcement” at the exercise date is given to its buyer
To test the first subsidiary Hypothesis this variable is the stock liquidity which is released quarterly by the Securities and Exchange Organization in Iran and to test the second subsidiary Hypothesis this variable is the valium of put option issuing to calculate this figure, the minimum volume which the issuer committed to issue is divided by total share number of the relevant company
This research investigated the relation between Iranian embedded put option issuing and stock’s abnormal return as the main research hypothesis
Summary
Stock put option is one of financial derivatives that stock holders may use it for hedging strategy so their stock return can be safe in down ward market and by the mean time help the company to protect its stock price in market and protect it from overselling. Since issuing new financial instrument may change investor’s opinion about the future of company and its performance (and by its turn change the stock price), it is important to investigate the effect of issuing financial instrument on stock price volatility. In Iran capital market the put options have been issued for several time since 2012 in Tehran Stock Exchange (TSE) listed companies. This research is the first one to investigate the effect of option issuing on risk adjusted return for TSE listed companies.
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