The information content of implied skewness and kurtosis changes prior to earnings announcements for stock and option returns

Diavatopoulos, Dean; Doran, James; Fodor, Andy; Peterson, David R.

doi:10.1016/j.jbankfin.2011.09.012

Cited by 54 publications

(29 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Broadie et al (2009), Coval and Shumway (2001), and Vanden (2006) show option-based strategies produce returns that are unique compared those that are equity based. Our approach to control for these types of returns is similar to that of Diavatopoulos, Doran, Fodor, and Peterson (2012), which uses straddles on the S&P 500 as a systematic risk factor. Thus, we include another factor to capture systematic options returns, ORF, which is the return on an at-the-money straddle on the S&P 500.…”

Section: Methodsmentioning

confidence: 99%

Anchoring and Probability Weighting in Option Prices

DeLisle

Diavatopoulos

Fodor

et al. 2017

Journal of Futures Markets

Self Cite

View full text Add to dashboard Cite

Cumulative prospect theory argues that the human decision‐making process tends to improperly weight unlikely events. Another behavioral phenomenon, anchoring bias, is the failure to update beliefs away from established anchor points. In this study, we find evidence that equity option market investors both anchor to prices and incorporate a probability weighting function similar to that proposed by cumulative prospect theory. The biases result in inefficient prices for put options when firms have relatively high or relatively low implied volatilities. This has implications for the cost of hedging long portfolios and long individual equity positions. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:614–638, 2017

show abstract

Section: Methodsmentioning

confidence: 99%

Anchoring and Probability Weighting in Option Prices

DeLisle

Diavatopoulos

Fodor

et al. 2017

Journal of Futures Markets

Self Cite

View full text Add to dashboard Cite

show abstract

“…Among these are studies that have documented that implied volatility in option prices decreases after earnings (e.g., Daley et al, 1988;and Isakov and Prignon, 2001), reflecting uncertainty resolution during earnings releases. Other studies link option implied volatilities to future returns (see Diavatopoulos et al, 2012); Choi (2014) provides another related study which examines the link between macroeconomic uncertainty and earnings releases; also, Tsai (2014) examines trading behavior prior to earnings announcements. The latter two studies also highlight the international nature of the analysis of option prices to measure uncertainty resolution.…”

Section: Motivation and Literature Reviewmentioning

confidence: 99%

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

Ray

2016

Business Fin & Account

View full text Add to dashboard Cite

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.

show abstract

“…Additionally, Diavatopolous et al (2009) show higher moments of option price distributions have strong predictive content for forecasting stock price movements around earnings announcements. However, unlike earnings announcements where dates are known in advance, dates of future analyst recommendation changes are unknown.…”

Section: Introductionmentioning

confidence: 97%

Option Market Efficiency and Analyst Recommendations

Doran¹,

Fodor²,

Krieger³

2010

Business Fin & Account

Self Cite

View full text Add to dashboard Cite

This paper examines the information content in option markets surrounding analyst recommendation changes. The sample includes 6,119 recommendation changes for optionable stocks over the period January 1996 through December 2005. As expected, mean underlying asset returns are positive (negative) on days of recommendation upgrades (downgrades). However, volatility levels and shifts prior to recommendation changes explain a significant portion of underlying asset price responses. Ex-ante price and volatility responses in option markets are linked to increased jump uncertainty risk premia. Our findings suggest information in option markets leads analyst recommendation changes, implying revisions contain less information than previously thought. Copyright (c) 2010 Blackwell Publishing Ltd.

show abstract

The information content of implied skewness and kurtosis changes prior to earnings announcements for stock and option returns

Abstract: openAccessArticle: FalsePage Range: 786-786doi: 10.1016/j.jbankfin.2011.09.012Harvest Date: 2016-01-12 15:11:35issueName: Perspectives on International and Corporate Financecover date: 2012-03-01pubType

Cited by 54 publications

References 41 publications

Anchoring and Probability Weighting in Option Prices

Anchoring and Probability Weighting in Option Prices

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

Option Market Efficiency and Analyst Recommendations

Contact Info

Product

Resources

About