Options, Short Sales, and Market Completeness

Journal of Finance - Tập 48 Số 2 - Trang 761-777 - 1993
Stephen Figlewski, Gwendolyn P. Webb1
1Figlewski is from the Stern School of Business, New York University, and Webb is from Baruch College, City University of New York. We would like to thank the Interactive Data Corporation for providing data used in this study, and Baruch College for research support. We are grateful for helpful comments on earlier versions of the paper from Robert Whaley, participants in seminars at Baruch College and Boston College, and two anonymous referees. Thanks also to Jeffrey Heisler for excellent research assistance.

Tóm tắt

ABSTRACTThis paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales. The significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling. We also find significant effects on option prices, related to the short interest in the underlying stock. We then present evidence that options also increase information efficiency. Earlier work, that is replicated and extended here, has suggested that short sale constraints cause stock prices to underweight negative information. Options appear to reduce that effect.

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Thông tin xuất bản

Journal of Finance

Tập 48 Số 2

761-777

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