Evolution of Market Uncertainty Around Earnings Announcements

24 Pages Posted: 7 Jun 2006

See all articles by Dušan Isakov

Dušan Isakov

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences

Christophe Pérignon

HEC Paris - Finance Department

Date Written: May 15, 2005

Abstract

This paper investigates theoretically and empirically the dynamics of the implied volatility (or implied standard deviation - ISD) around earnings announcements dates. The volatility implied by option prices can be interpreted as the level of volatility expected by the market over the remaining life of the option. We propose a theoretical framework for the evolution of the ISD that takes into account two well-known features of the instantaneous volatility: volatility clustering and the leverage effect. In this context, the ISD should decrease after an earnings announcement but the post-announcement ISD path depends on the content of the earnings announcement: good news or bad news. An empirical investigation is conducted on the Swiss market over the period 1989-1998.

Keywords: implied volatility, earnings announcements, leverage effect

JEL Classification: G13, G14

Suggested Citation

Isakov, Dušan and Pérignon, Christophe, Evolution of Market Uncertainty Around Earnings Announcements (May 15, 2005). Available at SSRN: https://ssrn.com/abstract=906702 or http://dx.doi.org/10.2139/ssrn.906702

Dušan Isakov (Contact Author)

University of Fribourg (Switzerland) - Faculty of Management, Economics and Social Sciences ( email )

Fribourg, CH 1700
Switzerland

HOME PAGE: http://www3.unifr.ch/cgf/en/

Christophe Pérignon

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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