In this study we test whether the introduction of options decreases market friction using the Hou and Moskowitz (2006) measure of price delay. Consistent with theory in Ross (1976), we find that the availability of options increases the flow of market-wide information into stock prices. Indeed,...

Following prior studies that suggest that option volume contains information about underlying stock prices, we examine option activity prior to earnings announcements. Results in this study show that put (call) volume relative to total option volume is higher prior to unfavorable (favorable)...

The decision to introduce options for stocks is made by exchanges with the intention of selecting stocks that will generate the most option trading activity. This study hypothesizes that exchanges will introduce options for stocks with positive skewness. The motivation for our tests is based on...

A broad stream of research shows that information flows into underlying stock prices through the options market. For instance, prior research shows that both the Put-Call Ratio (P/C) and the Option-to-Stock Volume Ratio (O/S) predict negative future stock returns. In this paper, we compare the...

This study tests the hypothesis that informed shorting activity decreases in the stock market when options become available because informed traders migrate from the stock market to the options market after options are introduced. To the contrary, we do not find that shorting activity decreases....