The Option Market Reaction to Bank Loan Announcements

Journal of Financial Services Research, Vol.53, No. (1), pp. 99-139, 2018

51 Pages Posted: 21 Mar 2016 Last revised: 24 Aug 2019

See all articles by Seraina C. Anagnostopoulou

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Aikaterini Ferentinou

University of Graz

Panagiotis Tsaousis

Athens University of Economics and Business

Andrianos E. Tsekrekos

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

Date Written: March 19, 2016

Abstract

In this study, we examine the options market reaction to bank loan announcements for the population of US firms with traded options and loan announcements during 1996-2010. We get evidence on a significant options market reaction to bank loan announcements in terms of levels and changes in short-term implied volatility and its term structure, and observe significant decreases in short-term implied volatility, and significant increases in the slope of its term structure as a result of loan announcements. Our findings appear to be more pronounced for firms with more information asymmetry, lower credit ratings and loans with longer maturities and higher spreads. Evidence is consistent with loan announcements providing reassurance for investors in the short-term, however, over longer time horizons, the increase in the TSIV slope indicates that investors become increasingly unsure over the potential risks of loan repayment or uses of the proceeds.

Keywords: bank loan announcements, option pricing, implied volatility, term structure of implied volatility

JEL Classification: G13, G14, G20, G21

Suggested Citation

Anagnostopoulou, Seraina C. and Ferentinou, Aikaterini and Tsaousis, Panagiotis and Tsekrekos, Andrianos E., The Option Market Reaction to Bank Loan Announcements (March 19, 2016). Journal of Financial Services Research, Vol.53, No. (1), pp. 99-139, 2018. Available at SSRN: https://ssrn.com/abstract=2750930

Seraina C. Anagnostopoulou (Contact Author)

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

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Aikaterini Ferentinou

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Panagiotis Tsaousis

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
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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