文档介绍：The Effect of Derivative Assets on
Information Acquisition and Price
Behavior in a Rational Expectations
Equilibrium
H. Henry Cao
University of California, Berkeley
This article shows that introducing derivative assets increases incentives to collect
information about asset payoffs. The increase in information collection makes the
price of the underlying asset more informative and causes the expected price to
increase. Extending the model to a dynamic setting with multiple risky assets,
we find that introducing derivative assets for one asset increases the expected
prices of positively correlated assets and reduces price reaction to future earnings
announcements. These findings are consistent with the bulk of the empirical
evidence on the relationship between the introduction of derivative assets and the
behavior of asset prices.
The number and scope of derivative markets have grown considerably in re-
cent years. The effect of such growth on market volatility for the underlying
assets has been a central issue in the empirical literature, especially since the
stock market crash of 1987. It is popularly held that the creation of deriva-
tive assets contributes to the excessive market volatility. It has recently been
proposed that additional regulation be It is therefore important
to understand how the introduction of derivative assets affects stock price
volatility, market liquidity, and price efficiency.
In Black and Scholes (1973), option contracts are redundant assets and
have no effects on the price of the underlying assets. However, when the
assumption plete, competitive, and frictionless markets is relaxed,
the introduction of an option may affect the price of the underlying asset.
This article is based on the second chapter of my dissertation from the University of California at Los
Angeles. This research benefited greatly from the advice of my mittee: Michael Brennan
(chairman), John Riley, Ed