IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v16y2011i3d10.1007_s11142-011-9145-8.html
   My bibliography  Save this article

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

Author

Listed:
  • Jeffrey J. Burks

    (University of Notre Dame)

Abstract

Billings and Jennings (2011) develop a new measure of stock price sensitivity to earnings called anticipated information content (AIC). The main difference between an AIC and an earnings response coefficient (ERC) is that AICs measure expected rather than actual sensitivity. I evaluate the AIC’s potential usefulness in future research, and conclude that AICs have several disadvantages relative to ERCs but might be useful in rare circumstances. Estimates of AICs contain considerable measurement error and fail a primary test of construct validity when left uncorrected. I outline a method for correcting two of the three sources of measurement error, which can be used by researchers interested in pursuing work on AICs. The method may have uses beyond computing AICs because it yields a prediction of the unsigned change in stock price during a scheduled event window.

Suggested Citation

  • Jeffrey J. Burks, 2011. "Discussion of: The option market’s anticipation of information content in earnings announcements," Review of Accounting Studies, Springer, vol. 16(3), pages 620-629, September.
    • Handle: RePEc:spr:reaccs:v:16:y:2011:i:3:d:10.1007_s11142-011-9145-8
    DOI: 10.1007/s11142-011-9145-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-011-9145-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-011-9145-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Patell, Jm & Wolfson, Ma, 1981. "The Ex Ante And Ex Post Price Effects Of Quarterly Earnings Announcements Reflected In Option And Stock-Prices," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 19(2), pages 434-458.
    2. Mary Brooke Billings & Robert Jennings, 2011. "The option market’s anticipation of information content in earnings announcements," Review of Accounting Studies, Springer, vol. 16(3), pages 587-619, September.
    3. Hull, John C & White, Alan D, 1987. "The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
    4. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    2. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    3. Peter Christoffersen & Ruslan Goyenko & Kris Jacobs & Mehdi Karoui, 2018. "Illiquidity Premia in the Equity Options Market," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 811-851.
    4. Hentati-Kaffel, R. & Prigent, J.-L., 2016. "Optimal positioning in financial derivatives under mixture distributions," Economic Modelling, Elsevier, vol. 52(PA), pages 115-124.
    5. Rüdiger Frey & Alexander Stremme, 1997. "Market Volatility and Feedback Effects from Dynamic Hedging," Mathematical Finance, Wiley Blackwell, vol. 7(4), pages 351-374, October.
    6. Bettina Freitag & Lukas Häfner & Verena Pfeuffer & Jochen Übelhör, 2020. "Evaluating investments in flexible on-demand production capacity: a real options approach," Business Research, Springer;German Academic Association for Business Research, vol. 13(1), pages 133-161, April.
    7. Eric Ghysels & Andrew Harvey & Eric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.
    8. Steven L. Heston & Alberto G. Rossi, 2017. "A Spanning Series Approach to Options," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 7(1), pages 2-42.
    9. Lin, Zih-Ying & Chang, Chuang-Chang & Wang, Yaw-Huei, 2018. "The impacts of asymmetric information and short sales on the illiquidity risk premium in the stock option market," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 152-165.
    10. Yoshino, Joe Akira, 2003. "Market Risk and Volatility in the Brazilian Stock Market," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-19, November.
    11. Cosma, Antonio & Galluccio, Stefano & Pederzoli, Paola & Scaillet, Olivier, 2020. "Early Exercise Decision in American Options with Dividends, Stochastic Volatility, and Jumps," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(1), pages 331-356, February.
    12. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    13. Nelson, Daniel B., 1996. "Asymptotic filtering theory for multivariate ARCH models," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 1-47.
    14. Saeed Marzban & Erick Delage & Jonathan Yumeng Li, 2020. "Equal Risk Pricing and Hedging of Financial Derivatives with Convex Risk Measures," Papers 2002.02876, arXiv.org, revised Sep 2020.
    15. Lin, Zhongguo & Han, Liyan & Li, Wei, 2021. "Option replication with transaction cost under Knightian uncertainty," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 567(C).
    16. Cosma, Antonio & Galluccio, Stefano & Scaillet, Olivier, 2012. "Valuing American options using fast recursive projections," Working Papers unige:41856, University of Geneva, Geneva School of Economics and Management.
    17. Minting Zhu & Mancang Wang & Jingyu Wu, 2024. "An Option Pricing Formula for Active Hedging Under Logarithmic Investment Strategy," Mathematics, MDPI, vol. 12(23), pages 1-20, December.
    18. Bing-Huei Lin & Mao-Wei Hung & Jr-Yan Wang & Ping-Da Wu, 2013. "A lattice model for option pricing under GARCH-jump processes," Review of Derivatives Research, Springer, vol. 16(3), pages 295-329, October.
    19. Cheng Few Lee & Yibing Chen & John Lee, 2020. "Alternative Methods to Derive Option Pricing Models: Review and Comparison," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 102, pages 3573-3617, World Scientific Publishing Co. Pte. Ltd..
    20. Dicle, Mehmet F. & Levendis, John, 2020. "Historic risk and implied volatility," Global Finance Journal, Elsevier, vol. 45(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:16:y:2011:i:3:d:10.1007_s11142-011-9145-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.