Options listings and individual equity volatility

This article examines the effect of options introduction on the conditional volatility of 1,576 individual firms over the 1973–1996 time period. With the use of a GJR‐GARCH specification for daily volatility, it is found, for the majority of firms, that option listing does not impact the underlying equity security. Listing effects are identified for a small subset of firms, specifically smaller firms with high trading volume and/or volatility. For these firms there is evidence of a change in the conditional volatility process after option listing, and it is concluded that options continue to provide additional information about the underlying equity for these companies. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27: 1–27, 2007