Intra-Industry Information Transfers: Evidence from Changes in Implied Volatility around Earnings Announcements

Review of Accounting Studies, Forthcoming

64 Pages Posted: 15 May 2018 Last revised: 30 Jan 2019

See all articles by Rebecca N. Hann

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Heedong Kim

Baruch College, City University of New York

Yue Zheng

Hong Kong University of Science & Technology (HKUST)

Date Written: January 25, 2019

Abstract

We examine whether there is intra-industry information transfer with respect to the second moment of returns around earnings announcements. Using implied volatility from option prices to proxy for uncertainty about firm fundamentals, we find a significantly positive association between changes in the implied volatility of each industry’s first announcer and its peers around the first announcer’s earnings announcement, suggesting that earnings announcements help resolve uncertainty about the value of not only the announcing firm but also its peers. This result holds after controlling for information transfer with respect to the first moment of returns. We further find that the extent of second-moment information transfer is stronger for long-duration options, when the announcer has higher earnings quality, reports positive earnings news, or is a bellwether firm and during periods of greater macroeconomic uncertainty. Our findings suggest that peers’ earnings announcements represent an important disclosure that conveys timely information about industry uncertainty.

Keywords: Second-moment information transfer, implied volatility, volatility risk, uncertainty, earnings announcements

JEL Classification: D83, G13, G14, M41

Suggested Citation

Hann, Rebecca N. and Kim, Heedong and Zheng, Yue, Intra-Industry Information Transfers: Evidence from Changes in Implied Volatility around Earnings Announcements (January 25, 2019). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3173754 or http://dx.doi.org/10.2139/ssrn.3173754

Rebecca N. Hann (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Heedong Kim

Baruch College, City University of New York ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Yue Zheng

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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