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This article extends Mayhew and Mihov (2004) and Mazouz (2004) by investigating if either the (time-varying) systematic or diversifiable risk of a NYSE-traded stock is impacted when its option is listed on the Chicago Board Option Exchange (CBOE). We employ a Kalman Filter to estimate time-varying betas, and apply a GARCH(1,1) process on the one-step-ahead forecast error to estimate conditional diversifiable risk. An individual stock approach rather than the customary portfolio approach is adopted. A control sample accommodates possible risk changes resulting from the endogenous nature of the exchange's option listing decision, and the potential impact of changes in market- and industry-wide conditions. The evidence indicates that option listing has no significant predictable impact on either risk characteristic.
