An option-based approach to measuring disclosure asymmetry
55 Pages Posted: 17 Nov 2017 Last revised: 17 Dec 2021
Date Written: December 15, 2021
In this paper, I develop a measure of the difference in the amount of information that investors expect a forthcoming disclosure to contain should it reveal good news versus bad news (the disclosure's ``asymmetry''). To do so, I first show that the disclosure's asymmetry is linked to the skewness of returns that it creates. I then show that this skewness can be measured using a weighted change in option-implied return skewness leading up to the disclosure's release. The measure's ability to capture investors' prior beliefs regarding asymmetry is advantageous when studying ex-ante decisions including contracting and information acquisition choices. I implement it on a sample of large firms' quarterly earnings announcements, finding evidence that investors anticipate cross-sectional, but not time-series variation in earnings' asymmetry.
Keywords: Option prices, disclosure, asymmetry, earnings announcements, model-free implied skewness
JEL Classification: M41, G12, G13, G14, D83
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