Evolution of Market Uncertainty around Earnings Announcements
This paper investigates theoretically and empirically the dynamics of the implied volatility (or implied standard deviation - ISD) around earnings announcements dates. The volatility implied by option prices can be interpreted as the level of volatility expected by the market over the remaining life of the option. We propose a theoretical framework for the evolution of the ISD that takes into account two well-known features of the instantaneous volatility: volatility clustering and the leverage effect. In this context, the ISD should decrease after an earnings announcement but the post-announcement ISD path depends on the content of the earnings announcement: good news or bad news. An empirical investigation is conducted on the Swiss market over the period 1989-1998.
|Date of creation:||Jun 2000|
|Contact details of provider:|| Postal: 40 bd. du Pont d'Arve, Case postale 3, CH - 1211 Geneva 4|
Phone: 41 22 / 312 09 61
Fax: 41 22 / 312 10 26
Web page: http://www.swissfinanceinstitute.ch
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levy, Haim & Yoder, James A, 1993. "The Behavior of Option Implied Standard Deviations around Merger and Acquisition Announcements," The Financial Review, Eastern Finance Association, vol. 28(2), pages 261-272, May.
- Monique, W.M. Donders & Roy Kouwenberg & Ton, C. F. Vorst, 2000. "Options and earnings announcements: an empirical study of volatility, trading volume, open interest and liquidity," European Financial Management, European Financial Management Association, vol. 6(2), pages 149-171.
- Jin-Chuan Duan, 1995. "The Garch Option Pricing Model," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 13-32.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Heynen, Ronald & Kemna, Angelien & Vorst, Ton, 1994. "Analysis of the Term Structure of Implied Volatilities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(01), pages 31-56, March.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Patell, James M. & Wolfson, Mark A., 1979. "Anticipated information releases reflected in call option prices," Journal of Accounting and Economics, Elsevier, vol. 1(2), pages 117-140, August.
- Robert C. Merton, 2005.
"Theory of rational option pricing,"
World Scientific Book Chapters,
in: Theory Of Valuation, chapter 8, pages 229-288
World Scientific Publishing Co. Pte. Ltd..
- Kate Adjaoute & Martin Bruand & Rajna Gibson-Asner, 1998. "On the Predictability of the Stock Market Volatility: Does History Matter?," European Financial Management, European Financial Management Association, vol. 4(3), pages 293-319.
- Bailey, Warren Bernard, 1988. "Money Supply Announcements and the Ex Ante Volatility of Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(4), pages 611-620, November.
- Donders, Monique W. M. & Vorst, Ton C. F., 1996. "The impact of firm specific news on implied volatilities," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1447-1461, November.
- 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.
- Sheikh, Aamir M, 1989. " Stock Splits, Volatility Increases, and Implied Volatilities," Journal of Finance, American Finance Association, vol. 44(5), pages 1361-1372, December.
- Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November.
When requesting a correction, please mention this item's handle: RePEc:fam:rpseri:rp15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja)
If references are entirely missing, you can add them using this form.