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Quarterly Earnings Announcements and the Lead/Lag Relationship between the Stock and Option Markets

Listed author(s):
  • Itzhak Krinsky
  • Jason Lee
Registered author(s):

    Using intraday data, this study examines the lead/lag relations of prices and trading activity between the option and stock option markets during the period surrounding quarterly earnings announcements. We are unable to support Stephan and Whaley's (1990) findings that, in general, trading activity in stocks leads trading activity in options. Our results suggest that in the pre- and post- earnings announcements periods, trading activity in options generally leads trading activity in stocks. The lead varies from 15 minutes two trading days prior to the quarterly earnings announcements to 30 minutes one day prior and on the day of the announcements. The results are robust to various measures of trading activity but sensitive to the sample design. Using the averages of bid-ask prices, we are able to confirm Chan, Chung, and Johnson's (1993) results in that we find no systematic lead of option average bid-ask prices over that of stocks in the days surrounding earnings announcements.

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    Paper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 328.

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    Length: 24 pages
    Date of creation: May 1997
    Handle: RePEc:mcm:qseprr:328
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