How Do Exchanges Select Stocks for Option Listing?

We investigate the factors influencing the selection of stocks for option listing. Exchanges tend to list options on stocks with high trading volume, volatility, and market capitalization, but the relative effect of these factors has changed over time as markets have evolved. We observe a shift from volume toward volatility after the moratorium on new listings ended in 1980. Using control sample methodology designed to correct for the endogeneity of option listing, we find no evidence that volatility declines with option introduction, in contrast to previous studies that do not use control samples.     

The nature of the foreign listing premium: A cross-country examination

An expanding literature asserts that non-US firms achieve a unique valuation premium for listing on US equity markets. In this paper we test the uniqueness of the US foreign listing premium by examining the premium achieved by foreign listings across a global set of stock exchanges. We highlight that the documented valuation premium for listing on US exchanges is not unique but common to many home and host markets including US firms that list abroad. The cross-sectional variation in the valuation premium appears to have little association with such cross-country institutional features as investor protection rules, law enforcement practice, or accounting disclosure standards. Rather the premium appears most related to variation in pre-listing valuation ratios.     

Days on market and home sales

In 2006, Massachusetts adopted a new policy that prohibits home sellers from resetting their properties’ days on market through relisting. Massachusetts homes exposed to the policy change experienced a $16,000 reduction in sale price relative to Rhode Island homes. Slow‐moving homes suffered a greater reduction, but newer listings only had a small increase in sale price. One reason is that some buyers were unaware of sellers’ manipulation of days on market and thus unable to recognize authentically new listings. Sellers reacted to the new policy by cutting listing prices, although in towns where listing price history was transparent, sellers raised listing prices to dampen the stigma of slow sales.     

Competitive and Information Effects of Cross-Border Stock Listings

We examine the effect of 269 cross‐border listings on rivals in the listing and domestic markets and find that U.S. rivals experience significant gains whereas domestic rivals do not. Both competitive and information effects are important in explaining the reaction of U.S. rivals. Regarding the competitive effects, the reaction of rivals is less favorable when listings originate in developed countries and more favorable when listing firms do not have prior operating presence in the United States. Regarding the information effects, the reaction is less favorable when listings are combined with equity offerings and more favorable when the listing is the first to occur within an industry.     

The Interrelation of Stock and Options Market Trading-Volume Data

This research empirically investigates the relation between common stock and call option trading volumes. The paper hyothesizes and tests a sequential flow of information between the stock and option markets. If information trading for CBOE-listed firms is predominantly accomplished through option trading, then existing research methodologies may be biased against finding any significant economic consequences in those instances where option listing is an important variable. Results indicate that trading in call options leads trading in the underlying shares, with a one-day lag.     

The Behavior of Bid–Ask Spreads and Volume in Options Markets during the Competition for Listings in 1999

In August 1999, U.S. exchanges began to compete directly for order flow in many options that had been exclusively listed on another exchange, shifting 37% of option volume to multiple‐listing status by the end of September. Effective and quoted bid–ask spreads decrease significantly after multiple listings with spreads generally maintaining their initial lower levels 1 year later. These results hold for both time series and pooled regressions and are robust. We reject that economies of scale in market making cause the decrease in spreads and support the view that interexchange competition reduces option transaction costs.     

Competition among stock exchanges for equity

We consider cross-border competition by stock exchanges for listings from firms that have controlling shareholders who have private benefits. We examine exchanges’ choices of their listing standards and firms’ choices of the exchanges where they cross-list their shares. We show that the share price compensates controlling shareholders for giving up some private benefits and enables firms with growth opportunities to obtain listings on exchanges with different listing standards. In particular, firms with high-growth opportunities tend to obtain listings on stock exchanges with high listing standards. We empirically examine these predictions and find that they are consistent with evidence.     

Do Newly Listed Derivatives Affect the Market Risk Premium in a Thin Stock Market?

This study examines the effects on the stock market unitary risk premium and volatility associated with the listing of stock and stock index derivatives in Switzerland. Based on a univariate GARCH (1,1) specification of the stock index variance and a time-varying unitary risk premium representation, we can reject the hypothesis that stock and stock index derivatives listings do not affect the total risk premium. Contrarily to previous empirical evidence, we find that derivatives listings affect both the conditional market returns' variance and the unitary risk premium through structural shocks. The gradual market completion hypothesis is further corroborated in that, cumulatively, the three stock and stock index options futures derivatives listings reduced the unitary risk premium while the marginal impact of each successive listing decayed.     

The effect of CBOE option listing on the volatility of NYSE traded stocks: a time-varying variance approach

This paper employs the standard General Auto-regressive Conditional Heteroskedasticity (GARCH(1,1)) process to examine the impact of option listing on volatility the underlying stocks. It takes into consideration the time variation in the individual stock's variance and explicitly tests whether option listing causes any permanent volatility change. It also investigates the impact of option listing on the speed at which information is incorporated into the stock price. The study uses clean samples to avoid sample selection biases and control samples to account for the change in the volatility and/or information flows that may be caused by factors other than option listing.     

Impact of warrant introductions on the behaviour of underlying stocks: Australian evidence

The present study examines the impact of first‐time introduction of warrants by third party issuers on the trading behaviour of a sample of underlying stocks listed on the Australian Stock Exchange. We investigate the price, liquidity and volatility impact of underlying stocks after warrant issuance and find considerable differences to those found for option listings. Significant negative abnormal returns on both the announcement and listing date of derivative warrants are reported, followed by a negative price drift. Relative trading volume and price volatility of underlying stocks are found to be significantly higher post‐warrant listing. Interestingly, we find that warrant holders are unable to realize gains for the majority of trading days when they are alive, consistent with the view that banks trade profitability from their issue.     

Dual-listings on international exchanges: the case of emerging markets' stocks

This paper examines the effects on stock returns of dual-listing on an international exchange. My sample consists of 70 firms from 10 emerging markets that dual-listed on the NYSE, NASDAQ and SEAQ-I (London) over the period 1991–1995. I evaluate whether an international dual-listing has any significant effect on returns, for the particular case of emerging markets' firms, and I proceed to investigate whether there is evidence to support an International Asset Pricing based explanation. In addition I compare the impact of US and London SEAQ-I listings. My results confirm previous empirical findings on international listings: the firms in my sample experience significant positive abnormal returns before listing and a significant decline in returns following listing. Evidence seems to be supportive of the segmentation hypothesis: dual-listing effects are more pronounced for emerging markets' listings and that pattern is similar across exchanges.
G15     

外国企业来我国上市的必要性及其法律准备

中外股市都存在着三大定理,即"会有越来越多的公司上市"、"会有越来越多的资金入市"和"牛市总比熊市长"。这给我们的启迪是:要使越来越多的公司上市以扩大供给,要使越来越多的资金入市以扩大需求。为使越来越多的公司上市以扩大供给,为了建立中国的国际金融中心,就应该允许外国企业来我国上市。未来牛市格局为外国企业来我国上市提供了经济上的可行性,为此,我国要做好一系列的法律准备,包括制定专门的规范性文件,规定外国企业境内首次公开发行并上市的各种条件和程序;对外国企业在我国境内发行证券实行注册制;完善保护投资者的法律制度等。     

DEALER BID-ASK SPREADS AND OPTIONS TRADING ON OVER-THE-COUNTER STOCKS

In this study the impact of option listings on bid-ask spreads for over-the-counter stocks is examined. Option listings are hypothesized to impact spreads by affecting the inventory-holding cost and/or the informed risk component of spreads. Univariate tests reveal that the commencement of options trading is accompanied by a statistically significant decline in percentage spreads. In addition, it is found that there is a significant rise in the average daily stock trading volume in the post-option-listing period, while there is no significant change in variance of the underlying stock returns in the short term. Regression results indicate that some stocks experience a decline in spreads even after controlling for changes in inventory-holding costs. The univariate and regression results taken in conjunction indicate a favorable impact of option listings on both the inventory-holding cost and informed-trading risk components of spread determinants. The combined evidence suggests that initiation of options trading enhances the overall liquidity of the underlying stock.     

Agency Costs,Mispricing, and Ownership Structure

Standard theories of ownership assume insiders ultimately bear all agency costs and therefore act to minimize conflicts of interest. However, overvalued equity can offset these costs and induce listings associated with higher agency costs. We explore this possibility by examining a sample of public listings of Japanese subsidiaries. Subsidiaries in which the parent sells a larger stake and subsidiaries with greater scope for expropriation by the parent firm are more overpriced at listing, and minority shareholders fare poorly after listing as mispricing corrects. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced.     

Convertible Debt Issuance and Market Completeness

Recent empirical evidence on option listings supports the notion that equity options help to span the market. This paper investigates the role of convertible debt in market completion. To the extent that the warrant portion of convertible instruments is similar to a call option, the securities can provide payoffs in states of nature that were previously unspanned. Stockholders of firms without listed options or pre-existing warrant-related securities suffer less severe wealth declines around convertible offerings than do owners of firms with contingent claims on their stock. The results suggest that, particularly before the rise of options on index futures, convertible debt played a market-spanning role similar to that of equity options.     

The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis

We find that option listings are associated with a decrease in the variance of the pricing error, a decrease in the adverse selection component of the spread, and an increase in the relative weight placed by the specialist on public information in revising prices for the underlying stocks. We also find that there is a decrease in the spread and increases in quoted depth, trading volume, trading frequency, and transaction size after option listings. Overall, our results suggest that option listings improve the market quality of the underlying stocks.     

Do Newly Listed Derivatives Affect the Market Risk Premium in a Thin Stock Market?

This study examines the effects on the stock market unitaryrisk premium and volatility associated with the listing of stockand stock index derivatives in Switzerland. Based on a univariateGARCH (1,1) specification of the stock index variance and atime-varying unitary risk premium representation, we can rejectthe hypothesis that stock and stock index derivatives listingsdo not affect the total risk premium. Contrarily to previousempirical evidence, we find that derivatives listings affectboth the conditional market returns’ variance and theunitary risk premium through structural shocks. The gradualmarket completion hypothesis is further corroborated in that,cumulatively, the three stock and stock index options futuresderivatives listings reduced the unitary risk premium whilethe marginal impact of each successive listing decayed. JELClassification: G12, G14.     

What Companies Need to Know About International Cross‐Listing

This article addresses four questions about cross‐listing by non‐U.S. companies on a U.S. stock exchange: Why do companies cross‐list? Does a U.S. listing increase firm value? If so, what are the sources of the increased valuation? And finally, how has the Sarbanes‐Oxley Act (SOX) affected the value of a U.S. listing? Both managerial surveys and academic research show that companies list in the U.S. to increase visibility and share liquidity, to broaden their shareholder base, to gain access to cheaper financing and reduce the cost of capital, and, in some cases, to implement a global business strategy. Foreign companies also typically cross‐list after periods of strong market performance and experience a positive valuation effect around the time of listing, but then underperform the market in the period after the cross‐listing. On average, cross‐listed companies exhibit higher valuations than their home‐market peers, but with significant variation based on firm characteristics: The valuation premiums are larger for smaller companies with higher past sales growth, higher ROAs, and lower financial leverage. In the long run, the companies that show a permanent increase in valuation are those that succeed in expanding their U.S. shareholder base and improving their levels of shareholder protection. Finally, the evidence suggests that SOX, while perhaps deterring some would‐be overseas listings, has not seriously eroded the net benefits of a U.S. listing.     

EVIDENCE OF MANAGERIAL TIMING: THE CASE OF EXCHANGE LISTINGS

Before an exchange listing, stock performance is exceptionally high. Earlier research reports that post-listing performance is poor. I document that the post-listing performance of most firms that list on either the American Stock Exchange or the New York Stock Exchange differs little from that of similar stocks that do not list. However, listing stocks that experience the highest pre-listing performance underperform their control stocks after listing. This finding supports the hypothesis that managers can time exchange listings around a peak in stock performance.     

Can a stock exchange improve corporate behavior? Evidence from firms' migration to premium listings in Brazil

Because Brazil's legal system lacked protection for minority shareholders and trading of Brazilian shares flowed to U.S. exchanges, in 2001 the São Paulo Stock Exchange, Bovespa, created three premium exchange listings that require more stringent shareholder protections. This paper examines the effects of a commitment to improved corporate disclosure and governance by firms' voluntary migration to these premium listings. Our analysis finds that a firm's migration brings positive abnormal returns to its shareholders, particularly when its shares did not have a prior cross-listing on a U.S. exchange and also when the firm chooses a premium listing with the highest standards. Migration to a premium listing also leads to a significant increase in the trading volume of non-voting shares. Firms that choose a premium listing tend to have growth opportunities that they finance with subsequent seasoned equity offerings. These results suggest that a premium listing is a mechanism for bonding to improved corporate behavior that can be less costly than cross-listing on a U.S. exchange.