hero working papers

The Effects of Information Asymmetries on the Success of Stock Option Listings

Number: 484
Year: 2013
Author(s): Alejandro Bernales and Massimo Guidolin
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 for underlying stocks predict option adoption rates. This occurs even when we control for factors that have been found to be significant in earlier literature, such as stock volatility and volume. However, 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.

Keywords: Stock options; option listings; asymmetric information; adoption rates; option volume, open interest
JEL codes: D82; G10; G14; O31