Why Do Option Introductions Depress Stock Prices? A Study of Diminishing Short Sale Constraints Academic Article uri icon

abstract

  • Early studies find that option introductions tend to raise the price of underlying stocks. More recent research indicates that post-1980 option introductions are associated with negative abnormal returns in underlying stocks. Other studies document increased short sale activities following option listing. This paper provides evidence that the documented abnormal returns and changes in short interest around option listings are consistent with the mitigation of short sale constraints resulting from the option introduction, and that both the abnormal returns and short interest changes around listing dates can be predicted using ex ante characteristics of the underlying stock.

published proceedings

  • Journal of Financial and Quantitative Analysis

altmetric score

  • 3

author list (cited authors)

  • Danielsen, B. R., & Sorescu, S. M.

citation count

  • 251

complete list of authors

  • Danielsen, Bartley R||Sorescu, Sorin M

publication date

  • January 2001

publisher