Options Trading and the Extent that Stock Prices Lead Future Earnings Information

Truong, Cameron

doi:10.1111/j.1468-5957.2012.02293.x

Cited by 12 publications

(3 citation statements)

References 113 publications

(196 reference statements)

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“…Furthermore, sophisticated market participants, such as institutional investors and analysts, are expected to facilitate information incorporation into prices (Boehmer and Kelley, 2009). In addition, prior literature finds that options trading facilitates informational efficiency (Watt et al, 1992;and Truong, 2012). Specifically, Truong (2012) finds that options trading increases the extent to which stock prices reflect future earnings due to private information flowing from the derivative markets to the market for the underlying security.…”

Section: (A) Sub-samples Where Slow Incorporation Of Information Is Umentioning

confidence: 99%

Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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In this paper, we examine the relation between managerial discretion in accruals and informational efficiency. We measure managerial discretion in accruals by the absolute value of abnormal accruals. Assuming that efficient prices follow a random walk, we measure informational efficiency by using stock return variance ratios. We find that the absolute value of abnormal accruals is negatively associated with the price deviation from a random walk pattern, estimated in the 12‐month period subsequent to the accrual reporting; hence, future informational efficiency increases with the extent to which managers exercise discretion over accruals. The results are consistent with the view that discretionary accruals, on average, convey useful information to investors and facilitate the price convergence to its fundamental value. Our findings are robust to a battery of tests, including tests to validate both our measures of informational efficiency and our measure of managerial discretion in accruals.

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Section: (A) Sub-samples Where Slow Incorporation Of Information Is Umentioning

confidence: 99%

Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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“…4 This is in line with findings from other studies such asNg et al (2013), but is done using uncertainty measured using option market prices, rather than realized stock price movements. We also note that the mere presence of option markets on a stock makes cashflow information dissemination more efficient, as documented inTruong (2012). Our study is not biased by this fact because our sample consists only of earnings announcements for comanies where the stock has enough traded options to compute risk-neutral distributions.C 2016 John Wiley & Sons Ltd…”

mentioning

confidence: 93%

Too Good to be True? An Analysis of the Options Market's Reactions to Earnings Releases

Ray

2016

Business Fin & Account

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Using option implied risk neutral return distributions before and after earnings announcements, we study the option market's reaction to extreme events over earnings announcements. While earnings announcements generally reduce short‐term uncertainty about the stock price, very good news does not reduce uncertainty and slightly bad news actually increases uncertainty. We also find that left tail probabilities decrease over earnings releases while right tail probabilities increase. We interpret these findings as evidence of maintained investor expectations that very good news is generally not released during earnings announcements, combined with skepticism in the form of lingering uncertainty at the release of such very good news.

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“…In this paper, we investigate whether mutual fund managers show selection skills for stocks with options written on them (i.e., optionable stocks) and whether this stock characteristic predicts future fund performance. Our paper is motivated by the large body of literature that links underlying spot prices to the information content of options products (Cao, Chen, & Griffin, 2005;Cremers & Weinbaum, 2010;Hsieh & He, 2014;Jin, Livnat, & Zhang, 2012;Johnson & So, 2012;Ryu, 2011Ryu, , 2015Truong, 2012). One notable recent study by An, Ang, Bali, and Cakici (2014) shows that option-implied volatilities contain useful information for forecasting cross-sectional stock returns.…”

Section: Introductionmentioning

confidence: 99%

Optionable Stocks and Mutual Fund Performance

Chung

Ryu

Wang

et al. 2017

Journal of Futures Markets

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We examine whether stock‐level options information drives mutual fund performance. Our paper is motivated by existing studies indicating that options prices or implied volatilities predict stock returns. We find that stock‐implied volatility innovations forecast mutual fund performance. Specifically, mutual funds investing in fewer optionable stocks or optionable stocks with favorable information outperform other funds. In addition, mutual fund managers overall do not trade on past options information. However, well‐performing fund managers use that information to decrease their holdings in poorly performing stocks. Moreover, well‐performing mutual funds containing strong options information tend to increase their holdings in optionable stocks in subsequent periods. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 38:390–412, 2018

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Options Trading and the Extent that Stock Prices Lead Future Earnings Information

Cited by 12 publications

References 113 publications

Managerial Discretion in Accruals and Informational Efficiency

Managerial Discretion in Accruals and Informational Efficiency

Too Good to be True? An Analysis of the Options Market's Reactions to Earnings Releases

Optionable Stocks and Mutual Fund Performance

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