Quint

Introduction#

Main RQ: Option Listing $\Rightarrow$ Corporate Information

The intro is still very short. You can think of various reasons why firms might have options trading on them: other investment profiles are possible, more hedging strategies, asymmetric information reduction (as you mentioned), possibility to reward management based on performance.

You also have to argue why your topic is interesting. Why should the reader care about option listing, and the differential effect of industry? What are the plausible effects of more information on companies? For management? For shareholders/stakeholders/regulators?

What can be the mechanisms that go from options to more information provision?

These factors can differ between industries. Therefore, the probability of option listing differs per industry (Mayhew & Mihov, 2004).

That there is a difference in probability of option listing in industries does not mean that “belonging in a certain industry” is a cause of option listing. You have to resort to theory more clearly to illustrate this point.

Literature#

Try to work a bit on structuring the literature review. Write one paragraph elucidating the structure of the literature review. Maybe you can start by saying that you are reviewing the literature on the determinants of an option listing, under which the first three subsections fall (Trading vol., leveraged trading, barriers to info).

There is no section yet linking option listing to asymmetric information reduction:

Given the extra possibilities of leveraged trading that option trading offers, the demand for extra information will also increase. Firstly, option trading offers the possibility to investors to gain returns on volatility. (Black, 1975) This creates a demand in information on future volatility of a stock that did not exist before. Secondly, higher leveraged returns allow for a higher return per invested dollar given the right investment. Therefore, the amount of money spent on information per invested dollar can be higher as well. This leads to a larger budget available for information for the same amount of investments. This chain of reasoning is supported by Easley et al. (1998), who found that the option market conveys information on an underlying stock beyond the information that is conveyed by the stock market.

This should be in a separate subsection, and should be more elaborate (as it is the core of your thesis).

Methodology#

Panel Data: Some firms receive option listing, others do not.

There is nonrandom selection into the treatment (option listing has determinants, so it is not randomly allocated). However, if the selection bias is constant over time, you can still obtain an unbiased estimate of the impact of option listning on information provision.

Keyword: plausible counterfactual. Parallel trends assumption. You have to show that the difference between firms that receive the treatment and that do not receive the treatment remain constant over time in terms of information provision. You can show this graphically and even test this formally.

T-statistic and Mann-Whitney tests are hereafter carried out between the regular sample and the control sample. These tests are carried out to examine whether the changes across pre- and post-option listing periods in the information environment are the same for both the sample of optioned stocks and the control sample.

You can do this in a regression framework with time-dummies and time-treatment interactions at times at which the treatment is not yet administered:

$$ Y_i = \alpha + \beta \text{Treatment}_i + \gamma \text{TimeDum}_t + \\
\delta \text{TimeDum x TreatmentGroupButNotYetTreatment} _{it} + \epsilon_i $$

and then you want all $\delta$’s to be equal to zero (insignificant).

The variable definitions seem reasonable to me. If you have time, you can try to find more proxies for information.