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Impact of seasoned equity and private placement disclosures on derivative prices: are the spot and option markets integrated?

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dc.contributor.authorMohamed Ariff
dc.contributor.authorCheng Fan Fah
dc.contributor.authorShamsher Mohamad Ramadili Mohd
dc.date.accessioned2017-11-09T08:30:26Z
dc.date.available2017-11-09T08:30:26Z
dc.date.issued2017
dc.description.abstractThis paper reports evidence of significant abnormal returns in call and put options in the New York Stock Exchange around the disclosure time of two equity funding events. The delta values as risk of options are used to adjust gross returns of calls and puts to obtain adjusted abnormal returns. Theory suggests any stock price increases around private placement announcement dates would make calls to become in-the-money, so call prices should increase: conversely, puts would become out-of-money so put prices should be unaffected. Stock price declines around seasoned equity announcement dates would make put prices to increase since puts become in-the-money: call prices, having become out-of-money, would not change. Further, if the spot to the derivative market price impact is due to both markets being fully integrated, a trading strategy could yield profits. To test this, we apply cointegration and Granger-causality tests: we find there is no predictable spot-to-option-market integration in either direction. The empirical evidence of option price changes reported here and also evidence of no integration provide support for the idea that spot and option prices are being formed independently of each other, therefore prices are consistent with the efficient market hypothesis and the option pricing model.en_US
dc.identifier.citationAriff, M., Cheng, F. F., & Ramadili Mohd, S. M. (2017). Impact of seasoned equity and private placement disclosures on derivative prices: are the spot and option markets integrated? International Journal of Bonds and Derivatives, 3(1), pp. 44–70.
dc.identifier.doihttps://dx.doi.org/10.1504/IJBD.2017.083951
dc.identifier.urihttps://ikr.inceif.edu.my/handle/INCEIF/2736
dc.languageEnglish
dc.language.isoengen_US
dc.publisherInderscience Enterprises Ltden_US
dc.rights2017. Inderscience Enterprises Ltd
dc.sourceSEDONA
dc.subjectAnnouncement effecten_US
dc.subjectSpilloveren_US
dc.subjectCall/put pricesen_US
dc.subjectPrivate placementen_US
dc.subjectSeasoned equity offeringen_US
dc.subjectCausalityen_US
dc.subjectIntegrationen_US
dc.titleImpact of seasoned equity and private placement disclosures on derivative prices: are the spot and option markets integrated?en_US
dc.typeJournal Articleen_US
dlc.maintopicConventional finance
dlc.subtopicCapital markets
dspace.entity.typePublication
ikr.doctypeScholarly Works
ikr.topic.maintopicConventional financeen_US
ikr.topic.subtopicConventional financeen_US
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relation.isAuthorOfPublication.latestForDiscovery33b91dde-0170-454c-8f2b-ec4b208837b9
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