Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/170448
Title: A STUDY ON THE REINTRODUCED STOCK OPTIONS ON THE SES : EFFECTS ON THE VOLATILITY OF THE UNDERLYING STOCKS AND REASONS FOR THE LOW TRADING VOLUME
Authors: LOH CHEE PENG
Issue Date: 1994
Citation: LOH CHEE PENG (1994). A STUDY ON THE REINTRODUCED STOCK OPTIONS ON THE SES : EFFECTS ON THE VOLATILITY OF THE UNDERLYING STOCKS AND REASONS FOR THE LOW TRADING VOLUME. ScholarBank@NUS Repository.
Abstract: This Academic Exercise attempts to study the effects of stock options trading on the volatility of the underlying stocks. F-tests, Paired Sign tests and Randomization tests are used for the study. A qualitative study on the reasons for the low trading volume of options on the SES is also conducted. Both the F-tests and Paired Sign tests show that the trading of options does not significantly affect the volatility of the underlying stocks on the SES. Of the three stocks examined, only Keppel Corporation stock shows a marginal decrease in volatility after the introduction of its stock options. Hence, it can be concluded that the introduction of stock options trading on the SES does not affect the volatility of the underlying stocks significantly. Randomization tests conducted on five option expirations on the SES indicate that expiration of stock options does not significantly affect the volatility of the underlying stocks. However, there is a slight decrease in volatility of the underlying stock on the options expiration day. The above findings differ from past studies conducted in overseas markets. This could be due to the low trading volume of options on the SES. The qualitative studies conducted using questionnaires and interviews show that some of the reasons given for the failure of options trading on the SES in 1977 are still valid today. Some additional reasons for the low trading volume of options since its reintroduction on the SES, include: intermediary failure in the system of stock options trading, lack of choices available to investors, lack of marketing and publicity by the SES, readiness of investors.
URI: https://scholarbank.nus.edu.sg/handle/10635/170448
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