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Does options listing impact on the time-varying risk characteristics of the underlying stocks? Evidence from NYSE stocks listed on the CBOE

Mazouz, Khelifa and Bowe, Michael 2009. Does options listing impact on the time-varying risk characteristics of the underlying stocks? Evidence from NYSE stocks listed on the CBOE. Applied Financial Economics 19 (3) , pp. 203-212. 10.1080/09603100801964396

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Abstract

This article extends Mayhew and Mihov (200422. Mayhew, S and Mihov, V. 2004. How do exchanges select stocks for option listing?. Journal of Finance, 59: 447–71. View all references) and Mazouz (200423. Mazouz, K. 2004. The effect of CBOE Option listing on the time varying total risk of the underlying stocks. Journal of Empirical Finance, 11: 695–708. View all references) by investigating if either the (time-varying) systematic or diversifiable risk of a NYSE-traded stock is impacted when its option is listed on the Chicago Board Option Exchange (CBOE). We employ a Kalman Filter to estimate time-varying betas, and apply a GARCH(1,1) process on the one-step-ahead forecast error to estimate conditional diversifiable risk. An individual stock approach rather than the customary portfolio approach is adopted. A control sample accommodates possible risk changes resulting from the endogenous nature of the exchange's option listing decision, and the potential impact of changes in market- and industry-wide conditions. The evidence indicates that option listing has no significant predictable impact on either risk characteristic.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Publisher: Routledge
ISSN: 0960-3107
Last Modified: 04 Jun 2017 06:32
URI: http://orca.cf.ac.uk/id/eprint/61693

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