Stock price clustering on option expiration dates

Sophie Xiaoyan Ni, Neil D. Pearson*, Allen M. Poteshman

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

88 Citations (Scopus)

Abstract

This paper presents striking evidence that option trading changes the prices of underlying stocks. In particular, we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices. On each expiration date, the returns of optionable stocks are altered by an average of at least 16.5 basis points, which translates into aggregate market capitalization shifts on the order of $9 billion. We provide evidence that hedge rebalancing by option market makers and stock price manipulation by firm proprietary traders contribute to the clustering.

Original languageEnglish
Pages (from-to)49-87
Number of pages39
JournalJournal of Financial Economics
Volume78
Issue number1
DOIs
Publication statusPublished - Oct 2005

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

User-Defined Keywords

  • Hedging
  • Manipulation
  • Option expiration
  • Stock price clustering

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