Options Trading and the Cost of Equity Capital

• 成果类型: Article
• 署名作者: Naiker, Vic; Navissi, Farshid; Cameron Truong
• 署名单位: Monash University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50275
• 发表日期: 2013
• 页码: 261-295
• 关键词: IMPLIED COST; price adjustment; STOCK; earnings; INFORMATION; volume; MARKET; return; EFFICIENCY; determinants

摘要

This study examines how options trading affects the rate of return expected by investors, i.e., the implied cost of equity capital. Our cross-sectional analysis suggests that firms with listed options have lower implied cost of equity capital than firms without listed options, while the results from our temporal difference-in-differences analysis suggest that firms with listed options experience a significant decrease in their implied cost of equity capital relative to a matched sample of firms without listed options following an options listing. Moreover, we find that within firms that have listed options, firms with higher options trading volume are associated with lower implied cost of equity capital. These findings, which are robust to a wide range of additional tests, are consistent with the view that options trading improves the precision of information and reduces information asymmetry problems, resulting in lower expected return on equity.