@article{ac175c3922c74dcba362d3d21c862cbb,
title = "Stock price clustering on option expiration dates",
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.",
keywords = "Hedging, Manipulation, Option expiration, Stock price clustering",
author = "Ni, {Sophie Xiaoyan} and Pearson, {Neil D.} and Poteshman, {Allen M.}",
note = "Funding Information: We thank Joe Levin, Eileen Smith, and Dick Thaler for assistance with the CBOE data, and thank the Office for Futures and Options Research of the University of Illinois at Urbana-Champaign for supporting Sophie Xiaoyan Ni through the Corzine Assistantship and for partial financial support of the Ivy DB data from OptionMetrics. The suggestions of an anonymous referee were especially helpful in improving the paper. The comments of Marco Avellaneda, Kerry Back, Dan Bernhardt, Bill Christie, Ryan Davies, Steve Figlewski, Jeff Harris, Larry Harris, Narasimhan Jegadeesh, Michael Lipkin, Stewart Mayhew, George Pennacchi, Bill Schwert (the editor), Joshua White and seminar participants at Louisiana State University, Rutgers University-Camden, the Securities and Exchange Commission, the University of Florida, the University of Illinois at Urbana-Champaign, and the University of Iowa are also gratefully acknowledged. We are responsible for any remaining errors. ",
year = "2005",
month = oct,
doi = "10.1016/j.jfineco.2004.08.005",
language = "English",
volume = "78",
pages = "49--87",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "1",
}