THE VOLATILITY EFFECT OF OPTION LISTING - SOME CANADIAN EVIDENCE

This paper examines the effect of the Canadian option listings on the volatility of the underlying stocks. Towards this end, this paper adju sts for contemporaneous change in market volatility and regression ten dency of beta, and employs distribution-free Moses test of a change in variance. On average, Canadian option listings reduced the variance a s well as the beta of the optioned stocks during the early years of tr ading (1970's). Surrounding the market crash of October 1987, option l istings tended to increase the beta, but not the variance. A compariso n of simultaneous listing of call and put options to listing of call o ptions only reveals that put options reduce the beta as well as the va riance of the underlying stock.