Options Trading and the Extent that Stock Prices Lead Future Earnings Information

44 Pages Posted: 2 Dec 2010

See all articles by Cameron Truong

Cameron Truong

Monash University; Financial Research Network (FIRN)

Multiple version iconThere are 3 versions of this paper

Date Written: November 30, 2010

Abstract

We examine the relation between options trading and the extent that stock prices lead future earnings information in the period 1998-2009. In a firm specific approach, we find that stock prices reflect future earnings information to a greater extent in firms’ post-options-listing period than in their pre-options-listing period. In a cross-sectional setting, we find that stock prices of firms with readily available options trading reflect future earnings information more and earlier than those of firms without available options. In a sub-sample containing only firms with listed options, we find that stock prices of firms with a high level of options trading volume reflect future earnings information more and earlier than those of firms with a low level of options trading volume. Findings in this study support the proposition that options trading results in more current information that is relevant for predicting future earnings being impounded into stock prices. Consistent with this proposition, we also document an inverse relation between options trading and the amount of new information provided by earnings announcements.

Keywords: Options Trading, Stock Prices, Earnings, Informational Efficiency

JEL Classification: G11, G14, G15, M41

Suggested Citation

Truong, Cameron, Options Trading and the Extent that Stock Prices Lead Future Earnings Information (November 30, 2010). Available at SSRN: https://ssrn.com/abstract=1718084 or http://dx.doi.org/10.2139/ssrn.1718084

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

Register to save articles to
your library

Register

Paper statistics

Downloads
65
rank
163,528
Abstract Views
854
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information