LEAPS introductions and the value of the underlying stocks [An article from: Journal of Financial Intermediation]

by L.L. Lundstrum, M.D. Walker

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This digital document is a journal article from Journal of Financial Intermediation, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
We examine the change in the value of the underlying stock associated with long-term option introduction. Analysis of the abnormal returns associated with LEAPS (Long-Term Equity Anticipation Security) introductions indicates a decline in firm value even after we control for the endogenous nature of the listing decision. However, the evidence does not support previously-offered explanations for the price change associated with option introductions. In particular, we do not find the predicted relations between the cumulative abnormal returns and variables associated with loosening of short sale constraints such as beta, proxies for the dispersion in investor beliefs, and change in relative short interest.

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