Options Trading Volume and Stock Price Response to Earnings Announcements

48 Pages Posted: 23 Nov 2009

See all articles by Charles J. Corrado

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance

Cameron Truong

Monash University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2009

Abstract

We examine the effect of options trading volume on the stock price response to earnings announcements over the period 1996–2007. Contrary to prior studies, we find no significant difference in the immediate stock price response to earnings information announcements between firms with listed options and firms without listed options. However, within the sample of firms with listed options, we find that higher options trading volume reduces the immediate stock price response to earnings announcements. This is consistent with evidence that the 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 abnormal options trading volume around earnings announcements hastens the stock price adjustment to earnings news. We present evidence that post-earnings announcement drift is lower for stocks of firms with high abnormal options trading volume around earnings announcements.

Keywords: Options, Trading Volume, Earnings Announcement, Stock Price

JEL Classification: G11, G14, G15, M41

Suggested Citation

Corrado, Charles J. and Truong, Cameron, Options Trading Volume and Stock Price Response to Earnings Announcements (November 17, 2009). Finance and Corporate Governance Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1508174 or http://dx.doi.org/10.2139/ssrn.1508174

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia
61492446214 (Phone)

Cameron Truong (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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