Options markets and the information content of accounting earnings releases

Skinner, Douglas J.

doi:10.1016/0165-4101(90)90031-x

Cited by 167 publications

(117 citation statements)

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“…In a different context, Jennings and Starks (1986) find that stocks with listed options adjust faster to quarterly earnings announcements than stocks without listed options and argue that the existence of option markets improves the dissemination of earnings news. Similarly, Skinner (1990) shows that the market anticipates a larger proportion of the information contained in earnings releases after option listing.…”

Section: Options Trading and Momentum Profitsmentioning

confidence: 99%

The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks

Badreddine

Galariotis

Holmes

2012

Journal of International Financial Markets, Institutions and Mo

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Copyright and moral rights to this thesis/research project are retained by the author and/or other copyright owners. The work is supplied on the understanding that any use for commercial gain is strictly forbidden. A copy may be downloaded for personal, non-commercial, research or study without prior permission and without charge. Any use of the thesis/research project for private study or research must be properly acknowledged with reference to the work's full bibliographic details.This thesis/research project may not be reproduced in any format or medium, or extensive quotations taken from it, or its content changed in any way, without first obtaining permission in writing from the copyright holder(s).If you believe that any material held in the repository infringes copyright law, please contact the Repository Team at Middlesex University via the following email address:eprints@mdx.ac.ukThe item will be removed from the repository while any claim is being investigated. 1The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks Sina Badreddine Middlesex University Emilios C Galariotis Audencia Nantes School of Management, PRES UNAM Phil Holmes University of Leeds AbstractConsiderable evidence from many countries suggests momentum strategies generate profits. These have been difficult to rationalise and evidence on the sources of such profitability is inconclusive. We utilise a sample of optioned stocks, characterised by high liquidity, high market capitalisation and fewer short sales constraints and compare results with control samples of non optioned stocks chosen on the basis of market value, turnover and bid-ask spread. The sample characteristics, and the fact that derivatives improve the impounding of information into prices, enable us to draw conclusions about the causes of momentum profits.While we find that short sales constraints are not the major driver of profitability and that most momentum profits disappear using two transactions costs measures of the bid-ask spread, one not previously used, the persistence of some momentum profits indicates that the market underreacts even to the most publicly available information.JEL Classification: G1, G14

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Section: Options Trading and Momentum Profitsmentioning

confidence: 99%

The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks

Badreddine

Galariotis

Holmes

2012

Journal of International Financial Markets, Institutions and Mo

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“…Several studies such as Skinner (1990) and Ho (1993) find that stocks with options exhibit smaller price reactions to earnings surprise, suggesting that option trading disseminates new information regarding earn-ings. Amin and Lee (1997) show that an increase in option open interest before an announcement is related to the direction of the earnings surprise.…”

Section: Earnings Announcementmentioning

confidence: 99%

Does Option Trading Convey Stock Price Information?

2012

SSRN Journal

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An option market maker who executes an option order turns to the stock market to hedge away the underlying stock exposure. Thus, the stock exposure imbalance in option transactions translates directly into order imbalance in stock trades. In this paper, I decompose total order imbalance in stock transactions into the imbalance induced by option transactions and the imbalance induced by stock transactions independent of option trading activities. I find that the stock exposure imbalance induced by option transactions has strong predictive power of stock returns that does not reverse at long horizons. The independent stock order imbalance has a transitory price impact. The option-based stock return prediction increases with the level of information asymmetry, short-sale costs, and options market activity. The option-induced imbalance also predicts cumulative abnormal returns five days before earnings announcements.JEL Classification: G14, G12, G13.

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“…The evidence tends to focus on stock option introductions due to the large quantity of listing events, and most of these studies (e.g., Skinner, 1989;Conrad, 1989) find a reduction in volatility following introduction. In addition, Lim (1991) andSkinner (1990), respectively, find that the speed with which information is incorporated into price and the accuracy of this information increase after options are introduced. Kumar, Sarin, and Shastri (1998) find a decrease in the adverse selection component of the bid-ask spread and a reduction in the pricing error variance after option introduction, signaling an improvement in pricing efficiency and market quality.…”

Section: The Impact Of Energy Derivatives On the Crude Oil Marketmentioning

confidence: 99%

The impact of energy derivatives on the crude oil market

Fleming

Ostdiek

1999

Energy Economics

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IntroductionBeginning in the 1970s, deregulation dramatically increased the degree of price uncertainty in the energy markets, prompting the development of the first exchangetraded energy derivative securities. The success and growth of these contracts attracted a broader range of participants to the energy markets and stimulated trading in an even wider variety of energy derivatives. Today, many exchanges and over-the-counter markets worldwide offer futures, futures options, swap contracts, and exotic options on a broad range of energy products, including crude oil, fuel oil, gasoil, heating oil, unleaded gasoline, and natural gas.It is well known that derivative securities provide economic benefits. The key attribute of these securities is their leverage (i.e., for a fraction of the cost of buying the underlying asset, they create a price exposure similar to that of physical ownership). As a result, they provide an efficient means of offsetting exposures among hedgers or transferring risk from hedgers to speculators. In addition, derivatives promote information dissemination and price discovery. The leverage and low trading costs in these markets attract speculators, and as their presence increases, so does the amount of information impounded into the market price. These effects ultimately influence the underlying commodity price through arbitrage activity, leading to a more broadly based market in which the current price corresponds more closely to its true value. Because this price influences production, storage, and consumption decisions, derivatives markets contribute to the efficient allocation of resources in the economy.Nonetheless, the tightened cross-market linkages that result from derivatives trading also fuel a common public and regulatory perception that derivatives generate or exacerbate volatility in the underlying asset market. These concerns are often voiced in the context of their "destabilizing" effects around major declines in the market. Following the 1987 stock market crash, for example, John Shad, former chairman of the Securities and Exchange Commission argued, "Futures and options are the tail wagging the dog. They have escalated the leverage and volatility of the markets to precipitous, unacceptable levels" (Wall Street Journal, 1988). This concern has led to studies commissioned by the 2 THE IMPACT OF ENERGY DERIVATIVES ON THE CRUDE OIL MARKETSecurities and Exchange Commission, the Commodity Futures Trading Commission, and a presidential task force; it also has been a driving force behind the adoption of program trading curbs, circuit breakers, and daily price limits in the futures markets, and the staggering of stock index futures and options expirations.There exists little theoretical or empirical evidence, however, to justify these actions. In perfect markets, derivatives should have no effect on the underlying asset market because they are redundant securities (i.e., they can be synthetically created by some combination of the asset and riskless bonds). With market imperfections,...

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Options markets and the information content of accounting earnings releases

Cited by 167 publications

References 27 publications

The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks

The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks

Does Option Trading Convey Stock Price Information?

The impact of energy derivatives on the crude oil market

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