The Relative Option to Stock Volume (OS) and Market Response to Earnings Surprises

51 Pages Posted: 8 Jan 2014 Last revised: 17 Nov 2016

See all articles by Atul Rai

Atul Rai

Wichita State University

Semih Tartaroglu

Wichita State University

Date Written: May 1, 2014


This study examines the effect of option volume relative to stock volume (O/S) on market response to earnings surprises. The market reaction per unit of earnings surprise is lower for firms that have high O/S prior to earnings announcement than for firms with low O/S prior to earnings announcement. The difference is exacerbated for higher levels of preannouncement returns. Results suggest informed trading by option traders stimulates preemption of the information content of earnings releases and makes earnings surprises less of a surprise. Overall, results are consistent with the view that options improve informational efficiency. Results are robust to several controls.

Keywords: Price Discovery, Relative Option to Stock Volume (OS), Earnings Surprises, Earnings Response Coefficient, Information and Market Efficiency

JEL Classification: D82, G12, G13, G14, M41

Suggested Citation

Rai, Atul and Tartaroglu, Semih, The Relative Option to Stock Volume (OS) and Market Response to Earnings Surprises (May 1, 2014). Journal of Accounting, Auditing and Finance, Forthcoming; 2014 Canadian Academic Accounting Association (CAAA) Annual Conference; 2014 American Accounting Association (AAA) Conference. Available at SSRN: or

Atul Rai (Contact Author)

Wichita State University ( email )

1845 Fairmount Avenue
Wichita, KS 67260-0087
United States
316-978-6251 (Phone)
316-978-3660 (Fax)

Semih Tartaroglu

Wichita State University ( email )

Department of Finance, Real Estate & Decision
Sciences (FREDS)
Wichita, KS 67260-0077
United States
(316) 978 7124 (Phone)

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