A note on the impact of options on stock return volatility 1 Nicolas P.B. Bollen 2 University of Utah, David Eccles School of Business, Salt Lake City, UT 84112, USA Received 9 May 1997; accepted 17 March 1998 Abstract This paper measures the impact of option introductions on the return variance of underlying stocks. Past research generally ®nds a signi®cant reduction in stock return variance following the listing of options through 1986. Using a more extensive sample, I compare changes in the return variance of optioned stocks to changes in the return variance of a control group. Since the average change in the control group is statistically indistinguishable from the average change in the optioned stocks, I conclude that option introductions do not signi®cantly aect stock return variance. Ó 1998 Elsevier Science B.V. All rights reserved. JEL classi®cation: G18 Keywords: Option listing; Derivatives 1. Introduction The recent spectacle of derivatives-related lawsuits and bankruptcies has recharged the debate regarding derivatives regulation. One popular question is Journal of Banking & Finance 22 (1998) 1181±1191 1 Previously titled ``The impact of Option Introduction on Stock Return Volatility: A Defense of the Null Hypothesis''. 2 Tel.: 1 801 581 8280; fax: 801 581 7214; e-mail: ®nnb@business.utah.edu. 0378-4266/98/$19.00 Ó 1998 Elsevier Science B.V. All rights reserved. PII S0378-4266(98)00056-9