The study aims at observing the impact of listing 106 Single Stock Futures (SSFs) and 31 Single Stock Options (SSOs) on the market value of their respective underlying stocks using event study methodology. The study defines event in two ways: (a) the day on which NSE releases the circular regarding the listing of stocks on F&O segment; and (b) the actual listing day. To test the statistical significance of abnormal returns which are attributed to the event under consideration, both parametric and nonparametric tests are used. There is evidence of positive response from the investors to the announcement and also listing of SSFs, supporting the market completion hypothesis. However, there is no such evidence observed when it comes to options. At times, there is evidence of negative reaction, probably, it is due to their lack of confidence in the probable success of options market. American options which were introduced earlier have been unsuccessful due to illiquidity and replaced with European style of options.

Any typical event study involves the estimation of the effect of an event on the wealth of the shareholders, and hence measurement of abnormal returns during the event period is central to the event study. There has been considerable empirical evidence which emphasizes that successive price changes in individual common stocks are very nearly independent. Studies by Alexander (1961), Fama (1965) and Samuelson (1965) supported the random movements in stock prices. Empirical research till 1969 mainly aimed at assessing the market efficiency by observing the independence of successive price changes. There has hardly been any study which examined the speed of adjustment of price to specific event or news or information. Fama et al. (1969) is the first event study which introduced a conventional methodology for testing the behavior of stock returns surrounding the stock split.

An event study assesses the impact of an event on corporate valuations. Researcher is concerned with how the corporate events like dividend payments, stock splits, bonus issues, merger or acquisitions, announcement of corporate earnings, etc. can have an impact on the value of the firm, i.e., how the impact will be reflected in the stock or other security price performance. Unusual behavior in stock price performance at the time of event reflecting either abnormally positive or negative performance is inconsistent with market efficiency. Event studies act not only as a tool to test market efficiency, but also to assess the impact of policy decisions. Event study methodology can be applied to both firm-specific and economywide events.

Applied Economics Journal, Market Reaction, Listing of Stocks on F&O Segment of NSE: Application of Event Study Methodology.