Equity Derivatives Introduction and Stock Market Efficiency

This study analyzes whether the introduction of equity derivatives has any impact on the market prices of underlying stocks. Inclusion of a stock in the list of underlyings for derivative trading is commonly believed to be a positive happening. In contrast to the existing work, this study finds no significant effect of equity derivatives introduction, as the stocks that are added to the list of permitted underlyings do not experience any significant abnormal returns on and around their date of inclusion. The results present evidence consistent with efficient stock markets in the semi-strong form.