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Options trading volume and stock price response to earnings announcements

Author

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  • Cameron Truong

    (Monash University)

  • Charles Corrado

    (Corrado Consultancy)

Abstract

We examine the effect of options trading volume on the stock price response to earnings announcements over the period 1996–2007. Contrary to previous studies, we find no significant difference in the immediate stock price response to earnings information announcements in samples split between firms with listed options and firms without listed options. However, within the sample of firms with listed options stratified by options volume, we find that higher options trading volume reduces the immediate stock price response to earnings announcements. This conforms with evidence that stock prices of high options trading volume firms have anticipated and pre-empted some earnings information in the pre-announcement period. We also find that higher abnormal options trading volume around earnings announcements hastens the stock price adjustment to earnings news and reduces post-earnings announcement drift.

Suggested Citation

  • Cameron Truong & Charles Corrado, 2014. "Options trading volume and stock price response to earnings announcements," Review of Accounting Studies, Springer, vol. 19(1), pages 161-209, March.
    • Handle: RePEc:spr:reaccs:v:19:y:2014:i:1:d:10.1007_s11142-013-9243-x
    DOI: 10.1007/s11142-013-9243-x
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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