Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

This book presents a critical review of the empirical literature that studies the efficiency of the forward and futures markets for foreign exchange. It provides a useful foundation for research in developing quantitative measures of risk and expected return in international finance.

In this book leading German econometricians in different fields present survey articles of the most important new methods in econometrics. The book gives an overview of the field and it shows progress made in recent years and remaining problems.