Academic Research on Chicago Board Options Exchange

• Tests of market efficiency of the Chicago Board Options Exchange, Galai, D. (1977). The Journal of Business, 50(2), 167-197. Galai scrutinizes the pricing mechanism of call options written on stocks. He goes on to test the efficacy of the newly-formed options market - the Chicago Board Options Exchange (CBOE) by pitting it against the option pricing model developed by Black and Scholes. 
• Transactions data tests of efficiency of the Chicago Board Options Exchange, Bhattacharya, M. (1983). Bhattacharyas paper illustrates the lower boundary condition tests that he performs using rational pricing of call options as a basis. Additionally, the author also performs a standard deviation test based on both the bidding and asking prices of options. Results from these lower boundary condition tests typically disregard minute and intermittent profits resulting from market mispricing. 
• Empirical tests of boundary conditions for CBOE options, Galai, D. (1978). Journal of Financial Economics, 6(2-3), 187-211. Galais paper derives the lower boundary conditions for traded options on the Chicago Board Options Exchange (CBOE). Subsequently, he subjects them to empirical testing and formultes two hypotheses: There exists noticeable synchronization between stock and options markets, resulting in simultaneous closing prices that fall within theoretical limits. The markets are efficient. 
• The Chicago board options exchange and market efficiency, Finnerty, J. E. (1978). Journal of financial and quantitative analysis, 13(1), 29-38. This paper highlights the phenomenal rise in investor as well as academic interest regarding the Chicago Board Options Exchange (CBOE), since its inception in 1973. Consequently, trading volume has also increased exponentially, reaching 1.5 million contracts traded on the CBOE and 800,000 contracts traded on the American Stock Exchange within the first three years of its formation. 
• An empirical reexamination of the impact of CBOE option initiation on the volatility and trading volume of the underlying equities: 19731986, Bansal, V. K., Pruitt, S. W., & Wei, K. J. (1989).Financial Review, 24(1), 19-29. This paper revisits the formative years of the Chicago Board Options Exchange (CBOE) and analyzes its impact on price volatility and trading volume. The study samples exchange data for the period 1973 - 1986 and runs empirical tests on all the listed firms. Based on the test results, the paper concludes that firms can reduce their risks by listing their options in an options exchange. 
• Trading costs for listed options: The implications for market efficiency, Phillips, S. M., & Smith Jr, C. W. (1980). Journal of financial economics, 8(2), 179-201. Phillips and Smith Jr scrutinize the atypical evidence regarding the effectiveness of the listed options exchanges. Their paper analyzes the composition of trading costs and concludes that abnormal returns are the result of several disregarded costs. Thus, anomalous results can be eliminated by adjusting the published trading rules to calculate corrected estimates of trading costs. 
• Options markets and stock return volatility, Skinner, D. J. (1989). Journal of Financial Economics, 23(1), 61-78.Skinners paper analyzes fluctuations in returns of common stocks at the time of listing of their respective ETFs. The paper concludes that there is a decline in stock return fluctuations after ETF listing. Skinner asserts that movements in market volatility is unable to explain this phenomenon. Moreover, listing options typically results in an increase in trading volume in the stock market. 
• CBOE options and stock volatility, Trennepohl, G. L., & Dukes, W. P. (1979). Review of Financial Economics, 14(3), 49. This paper illustrates how the initiation of the Chicago Board Options Exchange (CBOE) rekindled public interest in call option contracts. In fact, the rise of options contracts has been phenomenal since 1973, with four other exchanges joining CBOE in calling options contracts. The purpose of Trennepohl and Dukes study is to assess the effect of options listed in exchanges on the volatility of the underlying securities. 
• Options traders exhibit subadditive decision weights, Fox, C. R., Rogers, B. A., & Tversky, A. (1996). Journal of Risk and uncertainty, 13(1), 5-17. This paper follows the activities of options traders and concludes that although options traders price both risky as well as uncertain prospects, it is only the prices of risky prospects that concurred with their anticipated values. On the other hand, uncertain prospects were often priced in violation of expected utility theory. 
• The impact of listed options on the underlying shares, Hayes III, S. L., & Tennenbaum, M. E. (1979). Financial Management, 72-76. This paper elaborates statistical tests that demonstrate that listed options positively affect trade volume of underlying shares. Options also tend to lower volatility, thus augmenting price continuity. The authors peruse numerous studies originally performed by the Chicago Board Options Exchange (CBOE). They also conduct a survey via mail and analyze the results. 
• Clearly irrational financial market behavior: Evidence from the early exercise of exchange traded stock options, Poteshman, A. M., & Serbin, V. (2003). The Journal of Finance, 58(1), 37-70. Poteshman and Serbin sample exchange data from the period 1996 - 99 and scrutinize the early exercise of exchangetraded options by diverse groups of investors.The authors identify several instances of irrational exertions, especially by individual investors acting through brokers. On the other hand, traders acting on behalf of large businesses typically refrained from early exercise.