The document examines the characteristics that led to stocks being selected for option listing by exchanges from 1973 to 1996. A logit model was used to analyze how trading volume, volatility, and market capitalization related to the probability of option listing. The analysis found that exchanges were more likely to list options on stocks with higher trading volume and volatility. However, volatility became less important over time as the option markets matured. The same factors that predicted listing also predicted trading volume after listing.

1. Presented By-
Yasha Singh
4113007007
1
How Do Exchanges Select
Stocks For Option Listing?
By - Stewart Mayhew and Vassil Mihov

2. Objective
2
 To identify the characteristics that made stocks
more likely to be selected for option listing.
 To examine how these characteristics changed
over time as the markets matured.

3. Data Set
3
 Observed listing decisions from 1973 to 1996.
 Data partitioned into four sub periods, defined by
regulatory changes in 1980,1985 and 1991.

4. Methodology
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 Logit framework is used to measure the extend to
which the probability of option listing is related to
characteristics.
 Characteristics includes underlying stock’s volume,
volatility and market capitalization.
 For volume and volatility –
 long term components are included, measured over
250 trading days.
 Short term components over 30 trading days.

5. 5
 L(LIST) = β0 +β1 VOLUME +β2 STD +β3 ABVOL + β4
ABSTD + β5 SIZE + ε
 L(LIST) – log- odds ratio that a stock will be selected
for option listing.
 Where,
 VOLUME – average daily trading over the 250 trading
days.
 STD – annualized standard deviation of log return.
 ABVOL – ratio of 30- days to 250- days average daily
trading volume.
 ABSTD – analogous measure for volatility
 SIZE – market capitalization of the firm in constant
1996 dollars.

6. Finding
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 Same model that helps predict listing also helps
predict trading volume after listing.
 Factors that influence the listing decisions has
changed significantly over time.

7. Conclusion
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 Exchanges more likely to list options on stocks
with higher trading volume and higher volatility.
 In early stage of listing volatility is not the
important factor it only affects when firm get
matured.