Options Trading Volume and Stock Price Response to Earnings Announcements

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: 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