Abstract

http://ssrn.com/abstract=2883
 
 

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Option Trading, Price Discovery, and Earnings News Dissemination


Kaushik I. Amin


Lehman Brothers

Charles M.C. Lee


Stanford University - Graduate School of Business


CONTEMPORARY ACCOUNTING RESEARCH, Vol 14, No 2, Summer 1997

Abstract:     
Option market activity increases by more than 10 percent in the four days before quarterly earnings announcements. We show that the direction of this pre-announcement trading foreshadows subsequent earnings news. Specifically, we find option traders initiate a greater proportion of long (short) positions immediately before good (bad) earnings news. Midquote returns to active-side option trades are positive during non-announcement periods, and are significantly higher immediately prior to earnings announcements. Bid-ask spreads for options widen during the announcement period, but traders do not gravitate toward high delta contracts. Collectively, the evidence shows option traders participate generally in price discovery (the incorporation of private information in price), and more specifically in the dissemination of earnings news.

JEL Classification: M41, G13, G14

Accepted Paper Series


Not Available For Download

Date posted: February 19, 1997  

Suggested Citation

Amin, Kaushik I. and Lee, Charles M.C., Option Trading, Price Discovery, and Earnings News Dissemination. CONTEMPORARY ACCOUNTING RESEARCH, Vol 14, No 2, Summer 1997. Available at SSRN: http://ssrn.com/abstract=2883

Contact Information

Kaushik I. Amin
Lehman Brothers ( email )
9th Floor
New York, NY 10013
United States
212-526-8883 (Phone)
212-212 528-6187 (Fax)
Charles M.C. Lee (Contact Author)
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

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