The Impact of Option Introduction on Real Estate Investment Trusts

Abstract

Executive Summary. This paper examines the impact of option introduction on the returns, volatility, and volume of shares traded of real estate investment trusts (REITs) that underlie the options. The paper explores the initial and long-term impact on these variables and compares this to the impact at introduction for non-REIT equities. The findings reveal an initial decline in price at announcement and significant negative returns over a longer post-announcement period. There is not a significant change in volatility at option introduction, but there is a significant increase in trading volume. In most areas examined, REITs and non-REIT equities react similarly to option introduction.