July 30, 2021
We find that single-name options trading increases the absolute level of information content of prices (stock price informativeness). We show causality by examining the impact of Penny Pilot Program, which exogenously increases the options trading volume of some options. We rationalize our findings under the framework of Goldstein and Yang (2015) and show that informativeness increases through the channel of option and stock investors acquiring more information. The findings are driven by firms with higher information asymmetry and firms with more efficiently priced options.