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Lookup NU author(s): Min Deng, Dr Minh NguyenORCiD, Professor Bartosz GebkaORCiD
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
We find that equity option liquidity increases stock price crash risk. This effect is robust to different measures of option liquidity and crash risk, alternative weighting schemes, option moneyness, and is not spurious due to endogeneity issues. The option liquidity-stock crash risk causality is also a unique phenomenon, not a manifestation of higher crash risk in times of high volatility, and is a persistent feature of the US market not confined to periods of high volatility or financial crises only. The positive impact of option liquidity on future crash risk is more apparent for firms with higher degrees of information asymmetry and for low levels of option investors sentiment. Our results support the transient investor theory which posits that managers hoard bad corporate news to avoid short-term negative market reactions, leading to accumulation of bad news and severe price crashes when they are revealed at once.
Author(s): Deng M, Nguyen M, Gebka B
Publication type: Article
Publication status: Published
Journal: European Journal of Finance
Year: 2026
Volume: 32
Issue: 1
Pages: 51-91
Online publication date: 16/12/2025
Acceptance date: 27/11/2025
Date deposited: 06/12/2023
ISSN (print): 1351-847X
ISSN (electronic): 1466-4364
Publisher: Routledge
URL: https://doi.org/10.1080/1351847X.2025.2598224
DOI: 10.1080/1351847X.2025.2598224
ePrints DOI: 10.57711/py4z-4223
Notes: Revised and resubmitted.
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