STOCK AND OPTION MARKETS - THE SWISS EVIDENCE

The interactions between the markets for options and underlying shares are examined for Switzerland. Three topics are investigated. First, the introduction of traded options in the spring of 1988 lead to a permanent and significant increase in the prices of the underlying shares and a reduction in the volatility of returns. Second, price changes on the stock and options markets are positively related during trading on the exchanges. The evidence suggests that the stock leads the options market by about ten minutes. Some feedback is also present. Third, the stochastic characteristics of stock returns are not affected by the expiration of options.