Evolution of market uncertainty around earnings announcements
AbstractThis paper investigates, theoretically and empirically, the dynamic of the implied volatility (ISD) around earnings announcements dates. The volatility implied in option prices can be interpreted as the market's expected level of volatility over the remaining life of the option. In this framework the paper proposes a theoretical model of the evolution of the ISD that takes into accound two well-known features of the instantaneous volatility: volatility clustering and the leverage effect. The model indicates that the ISD should decrease after an earnings announcement except after a bad news where it should be stable or even increase. An empirical investigation is conducted on the Swiss market over the period 1989-1998.The results confirm the main implications of the theoretical model.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 25 (2001)
Issue (Month): 9 (September)
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Web page: http://www.elsevier.com/locate/jbf
Other versions of this item:
- Dušan Isakov & Christophe Pérignon, 2000. "Evolution of Market Uncertainty around Earnings Announcements," FAME Research Paper Series rp15, International Center for Financial Asset Management and Engineering.
- Isakov, D. & Perignon, C., 1999. "Evolution of Market Uncertainty around Earnings Announcements," Papers 99.12, Ecole des Hautes Etudes Commerciales, Universite de Geneve-.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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