Abstract
This study examines the relation between trading activity of equity options and the volatilities of the underlying equities. A sample of 45 companies with the most actively traded equity options at the Chicago Board of Options Exchange is selected and, for each company, equity price variability is compared with related stock and option trading volume. The significance of options trading activity in explaining the conditional volatilities of the underlying equities is comparable to that of stock trading activity, indicating a high degree of integration of the equity and the options markets. We also find that unexpected options trading activity contributes to enhanced volatility of the underlying equity returns. Finally, the analysis indicates that expected options trading activity significantly affects equity volatility in only a minority of firms. This is consistent with the contention that trading in the equity options market does not systematically lead to price destabilization in the underlying equity ...
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
