Review of Financial Studies Vol. 32 No. 2 2019
Option Pricing of Earnings Announcement Risks
Abstract
This paper uses option prices to learn about the equity price uncertainty surrounding information released on earnings announcement dates. To do this, we introduce reduced-form models and estimators to separate price uncertainty about earnings announcements from normal day-to-day volatility. Empirically, we find strong support for the importance of earnings announcements. We find that the anticipated price uncertainty is quantitatively large, varies across time, and is informative about the future return volatility. Finally, we quantify the impact of earnings announcements on formal option pricing models. Received April 13, 2017; editorial decision February 5, 2018 by Editor Stijn Van Nieuwerburgh.
- DOI
- 10.1093/rfs/hhy060
- Volume
- 32
- Issue
- 2
- Pages
- 646-687
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex