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Medientyp:
E-Book
Titel:
Does Options Listing Have Any Impact on the Time Varying Volatility of the Underlying Traded Stocks? Evidence from NYSE Stocks Listed on the Cboe
Beschreibung:
This paper investigates the relationship between options listing and the time varying volatility of the underlying stock returns, simultaneously accounting for several inherent sources of measurement bias which arise in examining the impact of an exchange's option listing decision. To account for the time varying nature of the individual firm's risk: (i) the standard GARCH (1,1) process of Bollerslev (1986) is applied to the daily stock returns in order to estimate conditional total risk; (ii) a Kalman Filter technique is used to estimate time varying betas; and (iii) a GARCH (1,1) process on the one-step ahead forecast error is employed to estimate conditional diversifiable risk. A carefully selected control sample accommodates possible risk changes resulting from the endogenous nature of the option listing decision, and the potential impact of changes in market- and industry-wide conditions. Finally, the paper adopts an individual stock approach rather than the customary portfolio approach. The empirical evidence strongly indicates that option listing is volatility-neutral