Options Trading Volume and Stock Price Response to Earnings Announcements

54 Pages Posted: 2 Jun 2010 Last revised: 14 Jun 2010

See all articles by Cameron Truong

Cameron Truong

Monash University; Financial Research Network (FIRN)

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2010

Abstract

We examine the effect of options trading volume on the stock price response to earnings announcements over the period 1996-2007. Contrary to previous studies, we find no significant difference in the immediate stock price response to earnings information announcements in samples split between firms with listed options and firms without listed options. However, within the sample of firms with listed options stratified by options volume, we find that higher options trading volume reduces the immediate stock price response to earnings announcements. This conforms with evidence that 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 higher abnormal options trading volume around earnings announcements hastens the stock price adjustment to earnings news and reduces post-earnings announcement drift.

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

JEL Classification: G11, G14, G15, M41

Suggested Citation

Truong, Cameron and Corrado, Charles J., Options Trading Volume and Stock Price Response to Earnings Announcements (June 1, 2010). Australian Centre for Financial Studies - Finsia Banking and Finance Conference 2010, Available at SSRN: https://ssrn.com/abstract=1619104 or http://dx.doi.org/10.2139/ssrn.1619104

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

HOME PAGE: http://www.firn.org.au

Charles J. Corrado

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

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
270
Abstract Views
1,648
rank
49,311
PlumX Metrics