Working Paper Series no. 495: The Effects of Information Asymmetries on the Ex-Post Success of Stock Option Listings

Abstract

We examine a number of unexplored factors that affect the ex-post adoption rates of newly listed stock options. We show that a variety of measures of information asymmetries concerning underlying stocks predict option adoption rates. These predictive relationships are robust to control factors that have been found to be significant in earlier literature, such as stock volatility and volume. Nevertheless, option listings induce a reduction in the strength of the information asymmetries in the underlying stock. Further, option bid-ask spreads start from low initial levels and increase over time, which is consistent with a modest initial aggressiveness of informed investors.

Alejandro Bernales
June 2014

Classification JEL : D82; G10; G14; O31.

Keywords : Stock options; option listings; asymmetric information; adoption rates; option volume, open interest.