A Note on the Impact of Options on Stock Return Volatility
Journal of Banking and Finance 22, p.1181-1191, 1998

Nicolas P.B. Bollen

ABSTRACT
This paper measures the impact of option introductions on the return variance of underling stocks. Past research generally finds a significant reduction in stock return variance following the listing of options through 1986. Using a more extensive sample, I compare changes in the return variance of optioned stocks to changes in the return variance of a control group. Since the average change in the control group is statistically indistinguishable from the average change in the optioned stocks, I conclude that option introductions do not significantly affect stock return variance.