Faculty of Economics and Business Administration Publications Database

The Effect of Option Trading at the DTB on the Underlying Stocks'' Return Variance

Authors:
Heer, Burkhard
Trede, Mark
Source:
Volume: 22
Number: 2
Pages: 233 - 245
Month: June
ISSN-Print: 0377-7332
Link External Source: Online Version
Year: 1997
Keywords: Stock market volatility; Option trading; Deutsche Terminbörse; Nonparametric tests; Stochastic dominance
Abstract: The effects of option trading at the DTB on the variance of the underlying stocks are examined. We use a new distribution free test being based on the empirical distribution functions. The evidence indicates that stock return variance increased after the introduction of the DTB. This effect can be partly explained by the strong increase in trading volume for option listed stocks. Our results stand in stark contrast to prior studies of both American and European financial markets.
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