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.

This paper investigates the behavior of stock and option prices around block trades in stocks. The results indicate that for both uptick and downtick block trades the stock prices adjust within a fifteen minute period after the block trade. Moreover, for uptick blocks there is no evidence of any stock price reaction before the block trade. However, the adjustment of stock price for downtick blocks begins about fifteen minutes before the block trade. They also find that option price behavior differs considerably from stock price behavior. Specifically, the authors' results suggest that options exhibit abnormal price behavior starting thirty minutes before the block and ending one hour after the block. The pattern is more pronounced for downtick blocks and for put options. The authors interpret this abnormal price behavior of options before the block trade as consistent with intermarket frontrunning.

Raman Kumar, Parvez R. Sopariwala, The Effect of Adoption of Long-Term Performance Plans on Stock Prices and Accounting Numbers, The Journal of Financial and Quantitative Analysis, Vol. 27, No. 4 (Dec., 1992), pp. 561-573

We report that traditional seasoned equity offerings (SEOs) are no longer firms' preferred choice for raising seasoned public equity. Traditional offerings have recently been surpassed by shelf-registered offerings in terms of both annual frequency and total capital raised. This represents a dramatic shift from the 1980s, during which the overwhelming majority of firms favored traditional over shelf-registered offerings. We find that the growth in shelf use is related to firms increasingly valuing and using the option feature of shelf registration to defer offerings. Moreover, the evidence indicates that the way firms now use shelf offerings resolves the shelf under-certification problem and results in no larger market penalties and significantly lower underwriter fees relative to non-shelf offerings. Finally, firms often use universal shelf filings and choose between debt and equity offerings based on the prevailing relative market conditions.

ABSTRACT 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.

ABSTRACT This paper investigates the behavior of stock and option prices around block trades in stocks. The results indicate that for both up tick and downtick block trades the stock prices adjust within a fifteen minute period after the block trade. Moreover, for uptick blocks there is no evidence of any stock price reaction before the block trade. However, the adjustment of stock price for downtick blocks begins about fifteen minutes before the block trade. We also find that option price behavior differs considerably from stock price behavior. Specifically, our results suggest that options exhibit abnormal price behavior starting thirty minutes before the block and ending one hour after the block. The pattern is more pronounced for downtick blocks and for put options. We interpret this abnormal price behavior of options before the block trade as consistent with intermarket frontrunning.

We examine the effect of aggregate cash flow news and discount rate news on momentum returns. We find that momentum profits are higher following aggregate positive cash flow news, even in down markets or low sentiment periods. This finding expands on the evidence in Cooper et al. (2004) that momentum is significant only when past market returns are non-negative and in Antoniou et al. (2013) that momentum is weaker when sentiment is pessimistic. We find that the higher momentum profits during aggregate positive cash flow news periods are primarily driven by the losers continuing to underperform in subsequent periods. Our findings are consistent with the Hong and Stein (1999) model in the sense that gradual diffusion of contradictory news is accentuated when change in wealth is positive and relatively more permanent.

Empirical studies on whether investments are sensitive to cash flows in imperfect markets often report conflicting results and have been criticized on conceptual and methodological grounds. Our study mitigates some of these problems using a research design that relates changes in investment–cash flow sensitivity to changes in the bid-ask spread measure of information asymmetry surrounding (i) implementation of the Sarbanes-Oxley (SOX) Act and (ii) deregulation of firms in the Transportation, Telecommunication, and Petroleum and Natural Gas industries. Consistent with our hypotheses, we find that information asymmetry decreases following SOX and that there is a corresponding decrease in the investment–cash flow sensitivity, pre- to post-SOX. Further, greater decreases in information asymmetry following SOX are associated with greater decreases in investment–cash flow sensitivity. The results for the deregulation sample are also consistent with our hypothesis, wherein we observe an increase in information asymmetry and corresponding increase in the investment–cash flow sensitivity following deregulation.

We examine a sample of firms that reset the exercise prices on their executive options. These repricings follow a period of about one year of poor firm-specific performance in which the average firm loses one-fourth of its value. No other offsetting changes to option terms or compensation are made, and many firms reprice more than once. Without repricing, a majority of the options would have been at-the-money within two years. We find that when faced with circumstances in which repricing might be chosen, firms with greater agency problems, smaller size, and insider- dominated boards are more likely to reprice.