Earnings guidance and market uncertainty

Rogers, Jonathan L.; Skinner, Douglas J.; Buskirk, Andrew Van

doi:10.1016/j.jacceco.2009.07.001

Cited by 275 publications

(222 citation statements)

References 41 publications

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“…However, some firms pre-announce bad news, some delay the announcement of bad news, and some give guidance prior to the announcement (Penman 1980;Kasznik and Lev 1995;Skinner 1997;Rogers, Skinner, and Van Buskirk 2009). The market reaction to good and bad news differs (Givoly and Palmon 1982;Chambers and Penman 1984;Skinner 1994;Kothari, Shu, and Wysocki 2009), and prior research finds differences in announcement equity returns for larger and smaller firms.…”

Section: Characteristics Of Earnings Announcementsmentioning

confidence: 99%

“…However, our interest is in the relation between the risk premiums and nondiversifiable volatility risk, not the magnitude of the premiums. 22 We use standardized options to mitigate concerns associated with estimating implied volatility from multiple options with varying expiration dates (Rogers, Skinner, and Van Buskirk 2009). We use at-the-money options because Whaley (1986) finds that implied volatilities derived from the Black and Scholes (1974) formula are most representative of realized volatility for at-the-money options.…”

Section: Construction Of Implied Earnings Announcement Volatilitymentioning

confidence: 99%

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Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements

Barth

2014

The Accounting Review

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This study seeks to determine whether earnings announcements pose non-diversifiable volatility risk that commands a risk premium. We find that investors anticipate some earnings announcements to convey news that increases market return volatility and pay a premium to hedge this non-diversifiable risk. In particular, we find evidence of risk premiums embedded in prices of firms' traded options that are significantly positively associated with the extent to which the firms' earnings announcements pose non-diversifiable volatility risk. In addition, we find that volatility risk premiums are concentrated among bellwether firms and result in predictable variation in option straddle returns around earnings announcements. Taken together, our findings show that some earnings announcements pose non-diversifiable volatility risk that commands a risk premium. JEL Classifications: M41; G12; G13; G14

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Section: Characteristics Of Earnings Announcementsmentioning

confidence: 99%

Section: Construction Of Implied Earnings Announcement Volatilitymentioning

confidence: 99%

Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements

Barth

2014

The Accounting Review

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“…This might be because unbundled guidance is more discretionary in nature and may often be triggered by some adverse exogenous events (e.g. Rogers, et al 2009). These results corroborate with earlier findings in Table 4 and help explain why unique firms are more likely to bundle additional disclosure with earnings announcements as tacit commitment mechanism instead of other types of more discretionary disclosure mechanisms, e.g.…”

Section: Overall Information Environmentmentioning

confidence: 99%

Informational Uniqueness, Corporate Disclosure, and Information Environment

Chau

2016

SSRN Journal

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This dissertation examines how the lack of comparable public peers ("informational uniqueness") is related to a firm's disclosure policy and information environment.Having less information spillover from other public firms may present an information deficiency if it is not compensated by other components of the information environment. Using textual similarity in business description among firms to measure the extent of peer presence, I find that informational uniqueness is associated with a higher propensity by firms to provide ongoing bundled guidance. This is consistent with firms attempting to mitigate the information deficiency through strengthening their tacit commitment to continued disclosure by providing more information regularly on predictable schedules. Overall, I find a strong negative relationship between informational uniqueness and the quality of corporate information environment only among firms without regular bundled guidance. My results suggest that, while informational uniqueness can generate significant information deficiency, firms with strong tacit commitment to ongoing disclosure are largely able to compensate for the lack of information spillover from peers.On the flip side, firms surrounded by many peers may be subject to the influence of peer dynamics on their disclosure behavior. While the presence of comparable public peers likely expands investors' information endowment on the base firm through information spillover on related exposures, discretionary disclosures by peer firms may also signal information arrival. This can raise investors' inferred probability that non-disclosure is due to strategic information withholding rather than the absence of new information. In relation to this, I show that the bid-ask spread of the base firm slightly increases when its closest peer initiates discretionary disclosures, but subsequently decreases upon disclosure by the base firm. In addition, I find that the number of comparable public peers is strongly positively associated with the frequency of discretionary disclosure. Overall, these results suggest that the presence of peer dynamics can induce firms with more peers to provide discretionary disclosures more frequently. This dissertation examines how the lack of comparable public peers ("informational uniqueness") is related to a firm's disclosure policy and information environment. Having less information spillover from other public firms may present an information deficiency if it is not compensated by other components of the information environment. Using textual similarity in business description among firms to measure the extent of peer presence, I find that informational uniqueness is associated with a higher propensity by firms to provide ongoing bundled guidance. This is consistent with firms attempting to mitigate the information deficiency through strengthening their tacit commitment to continued disclosure by providing more information regularly on predictable schedules.Overall, I find a strong negative relationship betwe...

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“…Thus, cross-sectional and time-series influences on the coefficient tying earnings news to ex-earnings-announcement stock price movements also affect our information content metric. 4 Rogers, Skinner and Van Buskirk (2009) We merge the OptionMetrics and I/B/E/S data to obtain an initial sample of firm-quarters with available option and analyst forecast data. As indicated in Figure 1, when merging the two datasets, we require that an EA_DATE falls within the four weeks of option data.…”

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confidence: 99%

The option market’s anticipation of information content in earnings announcements

Billings

Jennings

2011

Rev Account Stud

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We develop an ex ante measure of the information content of earnings announcements that allows us to estimate the stock market's response to news in upcoming earnings releases. Exploiting a powerful setting in the option market, our measure of anticipated information content (the AIC) separates the magnitude of the stock market's reaction to earnings information from earnings uncertainty. Our results suggest that option traders rationally anticipate the sensitivity of stock prices to earnings information and they do so in a way that recognizes crosssectional and time-series differences in the strength of the link between returns and earnings. Specifically, we find the AIC positively correlates with the magnitude of the ex post stock market sensitivity to unexpected earnings. In further tests, we document that the AIC increases with earnings persistence, firm growth prospects, the richness of firms' information environments and the presence of sophisticated ownership structures and decreases with anticipated discount rates. This paper sheds light on whether and how information content manifests in the option market and, in so doing, it introduces several opportunities for future study.Keywords: information content of earnings announcements; options; volatility; institutional ownership; information environment; return-earnings relation; earnings response coefficients JEL Classification: M41; M49; G14; G29 This paper benefited from the insightful comments of Eli Bartov, Daniel Beneish, Brian Cadman, Gavin Cassar, Melissa Lewis, Alexander Nezlobin, Jim Ohlson, Steve Ryan, Jerry Salamon, Wayne Thomas, Andrey Ukhov, Jim Wahlen, workshop participants at Indiana University and the University of Utah, and participants at the 2009 New York University Summer Camp and the 2010 Columbia-NYU Workshop. We thank Brian Bushee for supplying institutional ownership classification coding. 1 IntroductionIn this paper, we argue that the listed equity options market rationally anticipates the information content of upcoming earnings releases. Because option values closely relate to the market's estimate of the stock return volatility over the option's life, option traders must consider the potential effect that predictable news events have on this volatility. We use this relation between current option prices and future news-induced stock price volatility to extract a forecast of the information content of earnings announcements. In so doing, we isolate the market's anticipation of the magnitude of the stock market's reaction to earnings information from its uncertainty about the level of earnings and show that this predicted sensitivity allows for crosssectional and time-series differences in the link between returns and earnings.Absent a volatility-increasing event, options with little time to expiration and with an exercise price approximately equal to their underlying stock price should be virtually worthless (Black and Scholes, 1973). Yet, empirical evidence suggests that short-dated, at-the-money options expiring soon af...

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Earnings guidance and market uncertainty

Cited by 275 publications

References 41 publications

Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements

Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements

Informational Uniqueness, Corporate Disclosure, and Information Environment

The option market’s anticipation of information content in earnings announcements

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