IAHRW International Journal of Social Sciences Review

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Does Annual Results Announcement Affect Returns:An Investigation into Stocks with Options and Stocks without Options


Affiliations
1 Department of School of Business Studies, Punjab Agricultural University, Ludhiana, Punjab, India
     

   Subscribe/Renew Journal


The basic purpose of this paper is to study the impact of companies' annual results announcement on optioned stock returns relative to returns from stocks without options. If the proposition of information reflecting in options market earlier than spot market holds good, then there should be least impact of any information on returns from stocks with options relative to stocks without options. Using Standard Event methodology suggested by Brown and Warner (1985) and Kothari and Warner (1997) we find convincing evidence that announcement of companies' annual results do not significantly influence the returns from stock with options. However, returns from stocks without options have been significantly influenced by annual results announcement. This reinforces the observation that any stock related private information gets reflected in the options market before it gets reflected in stock market. However, in case stocks without options, as there are no other venues to act upon any private information, the impact of the same gets reflected in stocks prices themselves.

Keywords

Annual Results, Event Methodology, Stocks with Options, Stocks without Options.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Amin, K., & Lee, C. (1997). Option trading, price discovery and earning news dissemination. Contemporary Accounting Research, 14,153-192.

  • Back, K. (1993). Asymmetric information and options. Review of Financial Studies, 6, 435-472.

  • Bhuyan, R., & Chaudhury, M. (2005). Trading on the information content of open interest: Evidence from the US equity options market. Journal of Derivatives and Hedge Funds, 11, 16-36.

  • Biais, B., & Hillion, R (1994). Insider and liquidity trading in stock and options markets. Review of Financial Studies, 7, 743-780.

  • Black, F. (1975). Fact and fantasy in use of options. Journal of Financial Analysis, 31, 36-72.

  • Brown, S., & Warner, J. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14, 3-31.

  • Cao, FL, & Ou-Yang, H. (2005). Difference of opinion of public information and speculative trading in stocks and options. Review of Financial Studies, 22, 299-335.

  • Chae, J. (2005). Trading volume information asymmetry and timing information. Journal of Finance, 60, 413-442.

  • Dean, D., Doran, J.S., & Peterson, D. R. {2008). The information content in implied idiosyncratic volatility and the cross-section of stock returns: Evidence from the option markets. Journal of Futures Markets, 28, 1013-1039.

  • Dong, W., & Sinha, R. N. {2012). Where do informed traders trade? Trading around news on Dow 30 options. Retrieved fromhttp://dx.doi.org/10.2139/ssrn. 1785518s.

  • Duong, N. H., Kalev, S. P., & Mudalige, P. {2012). Volume reaction to firm specific news announcements. Retrieved from http://papers.ssrn.com./sol3/paper.cfm?abstract_ -2137004.

  • Figlewski, S., & Webb, P. G. {1993). Options, short sales and market completeness. Journal of Finance, 48,761-777.

  • French, K. R, &Roll, R {1986). Stock return variances: The arrival of information and thereaction oftraders. Journal of Financial Economics, 17, 5-26.

  • Jennings, R, & Starks, L. {1986). Earning announcements, stock price adjustments and the existence of option markets. Journal of Finance, 41, 107-125.

  • Kalev, P. S., Liu, W. M., Pham, P. K., & Jarnecic, E. {2004). Public information arrival and volatility of intradaystockreturns. Journal of Bank and Finance, 28,1441-1467.

  • Kim, O., & Verrecchia, R. E. {1994). Market liquidity and volume around earning announcements. Journal of Accounting Economics, 17,41-67.

  • Kothari, S., & Warner, J. {2001). Econometrics of event studies. Handbook in Finance Series, Elsevier/North -Holland, Chapter 1.

  • Kumar, R, Sarin,A., & Shastri, K. (1998). The impact of options trading on the market quality of the underlying security: An empirical analysis. Journal of Finance, 53, 717-732.

  • Manaster, S., & Rendleman, R. J. {1982). Option prices as predictors of equilibrium stockprices. Journal of Finance, 37, 1043-1057.

  • Moshirian, F., Nguyen, H. G., & Pham, P. {2010). Public information arrivals and stock price changes. Retrieved from http://www.researchgate.net/publication/256003230_Public_Information_Arrivals_and_Stock_Price_Changes.

  • Mukherjee, K. N., & Mishra, R. K. {2004). Impact of open interest and trading volume in option market on underlying cash market: Empirical evidence from Indian equity option market. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=695745.

  • Ni, S. X., Pearson, N. D., & Poteshman, A. M. {2005). Stock price clustering on option expiry dates. Journal of Financial Economics, 78,49-88.

  • Nofsinger, J. R {2001). The impact of public information on investors. Journal of Banking and Finance, 25, 1339-1366.

  • Roll, R, Shwartz, E., & Subramanyam, A. {2010). O/S: The relative trading activity in options and stock. Journal of Financial Economics, 96, 1-17.

  • Ross,S. (1976). Options and efficiency. Quarterly Journal of Economics, 90, 75-89.

  • Sarkar, A., & Schwartz, A. R. {2009). Market sidedness: Insight motives for trade initiation. Journal of Finance, 64, 375-423.

  • Skinner, D. J. (1990). Options markets and the information content of accounting earnings releases. Journal of 'Accounting andEconomics, 13, 191-211.

  • Srivastava, S. {2003). Information content of trading volume and open interest An empirical study of stock option market in India. Indian Journal of Finance, 7, 5-15.

  • Troung, C, & Corrado, C. {2010). Option trading volume and stock price response to earning announcements. Retrieved from papers.ssrn.com/sol3/papers.cfm? abstract_id=1508174.

  • Vega, C. {2006). Stock price reaction to public and private information. Journal of Financial Economics, 82,103-133.

  • Xing, Y., Zhang, X., & Zhao, R. {2010). What does individual option volatility smirk tell us about future equity returns'? Journal of Financial Quantitative Analysis, 45, 641-662.


Abstract Views: 306

PDF Views: 0




  • Does Annual Results Announcement Affect Returns:An Investigation into Stocks with Options and Stocks without Options

Abstract Views: 306  |  PDF Views: 0

Authors

Monika Arora
Department of School of Business Studies, Punjab Agricultural University, Ludhiana, Punjab, India
Navdeep Aggarwal
Department of School of Business Studies, Punjab Agricultural University, Ludhiana, Punjab, India
Mohit Gupta
Department of School of Business Studies, Punjab Agricultural University, Ludhiana, Punjab, India

Abstract


The basic purpose of this paper is to study the impact of companies' annual results announcement on optioned stock returns relative to returns from stocks without options. If the proposition of information reflecting in options market earlier than spot market holds good, then there should be least impact of any information on returns from stocks with options relative to stocks without options. Using Standard Event methodology suggested by Brown and Warner (1985) and Kothari and Warner (1997) we find convincing evidence that announcement of companies' annual results do not significantly influence the returns from stock with options. However, returns from stocks without options have been significantly influenced by annual results announcement. This reinforces the observation that any stock related private information gets reflected in the options market before it gets reflected in stock market. However, in case stocks without options, as there are no other venues to act upon any private information, the impact of the same gets reflected in stocks prices themselves.

Keywords


Annual Results, Event Methodology, Stocks with Options, Stocks without Options.

References