Information from Implied Volatility Comovements and Insider Trades

54 Pages Posted: 20 Jan 2022 Last revised: 6 Apr 2022

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Vivek Raval

University of Illinois at Chicago - Department of Accounting

Sean Wang

Southern Methodist University (SMU) - Accounting Department

Date Written: April 5, 2022

Abstract

We investigate whether implied volatility comovements reflect the degree to which a firm’s private information is informative about future macroeconomic news. We compute IVC, the comovement of the implied volatilities between the firm and the aggregate market. IVC measures the extent to which option investors expect the coincidence of future firm and macroeconomic information arrival. Using insider purchases as a proxy for firms’ private information and future aggregate equity returns as a proxy for macroeconomic news, we find that IVC moderates the association between firms’ private information and macroeconomic news. Consistent with this finding, we also find that firms with higher IVC have stock returns that are more informative about future aggregate earnings and have stronger aggregate market reactions to their earnings announcements. Overall, IVC effectively measures the relevance of a firm’s private information to aggregate markets.

Keywords: Volatility, Accounting Earnings, Macroeconomy, Insider Trading, Forecasting, Bellwether

JEL Classification: G14, M41, G12, G13

Suggested Citation

Bushman, Robert M. and Raval, Vivek and Wang, Sean, Information from Implied Volatility Comovements and Insider Trades (April 5, 2022). SMU Cox School of Business Research Paper No. 22-02, Available at SSRN: https://ssrn.com/abstract=4013087 or http://dx.doi.org/10.2139/ssrn.4013087

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Vivek Raval

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

Sean Wang (Contact Author)

Southern Methodist University (SMU) - Accounting Department ( email )

United States
2147682858 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
141
Abstract Views
558
rank
295,951
PlumX Metrics