Option pricing of earnings announcement risks

Dubinsky, Andrew, Johannes, Michael, Kaeck, Andreas and Seeger, Norman J (2019) Option pricing of earnings announcement risks. Review of Financial Studies, 32 (2). pp. 646-687. ISSN 0893-9454

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Abstract

This paper uses option prices to learn about the equity price uncertainty surrounding information released on earnings announcement dates. To do this, we introduce reduced-form models and estimators to separate price uncertainty regarding earnings announcements from normal day-to-day volatility. Empirically, we find strong support for the importance of earnings announcements. We find that the anticipated price uncertainty is quantitatively large, varies across time, and is informative about the future return volatility. Finally, we quantify the impact of earnings announcements on formal option pricing models.

Item Type: Article
Schools and Departments: University of Sussex Business School > Accounting and Finance
Research Centres and Groups: Quantitative International Finance Network
Subjects: H Social Sciences > HG Finance
H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects > HG0106 Mathematical models
Depositing User: Andreas Kaeck
Date Deposited: 06 Feb 2018 11:38
Last Modified: 22 May 2020 01:00
URI: http://sro.sussex.ac.uk/id/eprint/73370

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