Accounting Quality, Information Risk and Implied Volatility around Earnings Announcements

44 Pages Posted: 15 Oct 2014 Last revised: 25 Feb 2015

See all articles by Seraina C. Anagnostopoulou

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: October 28, 2014

Abstract

We examine the impact of accounting quality, used as a proxy for information risk, on the behavior of equity implied volatility around quarterly earnings announcements. Using US data during 1996-2010, we observe that lower (higher) accounting quality significantly relates to higher (lower) levels of implied volatility (IV) around announcements. Worse accounting quality is further associated with a significant increase in IV before announcements, and is found to relate to a larger resolution in IV after the announcement has taken place. We interpret our findings as indicative of information risk having a significant impact on implied volatility behavior around earnings announcements.

Keywords: Accounting quality, accruals quality, information risk, earnings announcements, implied volatility, investor uncertainty

JEL Classification: G13, G14, M41

Suggested Citation

Anagnostopoulou, Seraina C. and Tsekrekos, Andrianos E., Accounting Quality, Information Risk and Implied Volatility around Earnings Announcements (October 28, 2014). Journal of International Financial Markets, Institutions and Money, Vol. 34, pp. 188-207, 2015. Available at SSRN: https://ssrn.com/abstract=2509969 or http://dx.doi.org/10.2139/ssrn.2509969

Seraina C. Anagnostopoulou (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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