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

Yangyang Chen, Constantine Koutsantony, Cameron Truong, Madhu Veeraraghavan

Research output: Journal article publicationJournal articleAcademic researchpeer-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
Issue number1
DOIs
Publication statusPublished - 1 Feb 2013
Externally publishedYes

Keywords

  • Options listing informational efficiency
  • Options trading volume
  • S&P 500 index

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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