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Option prices as predictors of stock prices: intraday adjustments to information releases

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  • P. L. Varson
  • M. J. P. Selby

Abstract

This study tests for intraday lead/lag relationships between a given stock price and the stock value implied by the prices of call options on that stock. The results indicate that throughout the five trading days preceding earnings announcements with significant unanticipated information content, implied stock values lead their corresponding observed stock prices by about fifteen minutes. On the announcement day itself, this lead lengthens to the point that call option prices usually adjust at least one hour before the public announcement. Under most circumstances, evidence of this lead disappears immediately after the announcement and prices remain synchronous between the two markets.

Suggested Citation

  • P. L. Varson & M. J. P. Selby, 1997. "Option prices as predictors of stock prices: intraday adjustments to information releases," The European Journal of Finance, Taylor & Francis Journals, vol. 3(1), pages 49-72, March.
    • Handle: RePEc:taf:eurjfi:v:3:y:1997:i:1:p:49-72
    DOI: 10.1080/135184797337534
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    References listed on IDEAS

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