Stock price response to S&P 500 index inclusions: Do options listings and options trading volume matter?

Yangyang Chen, Constantine Koutsantony, Hai Au Truong, Madhu Veeraraghavan

    Research output: Contribution to journalArticleResearchpeer-review

    1 Citation (Scopus)

    Abstract

    This study investigates the stock price response to Standard Poor s (S P) 500 index inclusions during the period 1996-2010 and the role of options listings and options trading volume with regard to the information content of index inclusion announcements. Specifically, we address the following questions: (1) Is the magnitude of abnormal returns from the announcements of S P 500 inclusions significantly lower for stocks with options listings? and (2) Is the magnitude of abnormal returns from the announcements of S P 500 inclusions significantly lower for stocks with a high level of options trading volume? Our findings indicate that options listings themselves are not related to the magnitude of abnormal returns from the announcements of S P 500 inclusions. We also find that greater levels of options trading volume do not convey private information about the S P 500 index changes. We document that any measurable impact of options trading on the stock price response to S P 500 inclusion announcements lies primarily in the level of abnormal options trading volume in the period immediately preceding the announcements.
    Original languageEnglish
    Pages (from-to)379 - 401
    Number of pages23
    JournalJournal of International Financial Markets, Institutions and Money
    Volume23
    DOIs
    Publication statusPublished - 2013

    Cite this