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How do exchanges select stocks for option listing
- 1. Presented By- Yasha Singh 4113007007 1 How Do Exchanges Select Stocks For Option Listing? By - Stewart Mayhew and Vassil Mihov
- 2. Objective 2 To identify the characteristics that made stocks more likely to be selected for option listing. To examine how these characteristics changed over time as the markets matured.
- 3. Data Set 3 Observed listing decisions from 1973 to 1996. Data partitioned into four sub periods, defined by regulatory changes in 1980,1985 and 1991.
- 4. Methodology 4 Logit framework is used to measure the extend to which the probability of option listing is related to characteristics. Characteristics includes underlying stock’s volume, volatility and market capitalization. For volume and volatility – long term components are included, measured over 250 trading days. Short term components over 30 trading days.
- 5. 5 L(LIST) = β0 +β1 VOLUME +β2 STD +β3 ABVOL + β4 ABSTD + β5 SIZE + ε L(LIST) – log- odds ratio that a stock will be selected for option listing. Where, VOLUME – average daily trading over the 250 trading days. STD – annualized standard deviation of log return. ABVOL – ratio of 30- days to 250- days average daily trading volume. ABSTD – analogous measure for volatility SIZE – market capitalization of the firm in constant 1996 dollars.
- 6. Finding 6 Same model that helps predict listing also helps predict trading volume after listing. Factors that influence the listing decisions has changed significantly over time.
- 7. Conclusion 7 Exchanges more likely to list options on stocks with higher trading volume and higher volatility. In early stage of listing volatility is not the important factor it only affects when firm get matured.