48 Pages Posted: 23 Nov 2009
Date Written: November 17, 2009
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: 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
By Frank Zhang