The effect of derivative trading on the underlying markets: Evidence from Canadian instalment receipts trading

We examine the impact of instalment receipts (IRs) trading on the underlying stocks' volatility. IRs are a derivative security that evidences the purchase of an underlying security on an instalment basis. IRs have been commonly used to facilitate large secondary stock offerings in Canada and other commonwealth countries. We find that while the trading of IRs generally increases the underlying stocks' trading volume, it generally does not have a …