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Author: Li-Chin Jennifer Ho Publisher: ISBN: Category : Languages : en Pages :
Book Description
Prior studies show that option listing and subsequent trading improve a firm's information environment and that the price-earnings relation is influenced by characteristics of the information environment. Motivated by these research findings, we examine whether option trading is associated with changes in the information content of security prices with respect to future accounting earnings. We find that before the listing of a firm's options, the firm's security returns from the previous fiscal year convey little information regarding the current year's earnings changes. In contrast, the returns from the previous fiscal year are a significant variable in explaining the current year's earnings changes after option listing. Our findings are robust after potential confounding factors, such as firm size, financial press coverage, and institutional concentration, are controlled. Overall, the evidence is consistent with the claim that option trading enhances the informativeness of security prices with respect to future accounting earnings.
Author: Li-Chin Jennifer Ho Publisher: ISBN: Category : Languages : en Pages :
Book Description
Prior studies show that option listing and subsequent trading improve a firm's information environment and that the price-earnings relation is influenced by characteristics of the information environment. Motivated by these research findings, we examine whether option trading is associated with changes in the information content of security prices with respect to future accounting earnings. We find that before the listing of a firm's options, the firm's security returns from the previous fiscal year convey little information regarding the current year's earnings changes. In contrast, the returns from the previous fiscal year are a significant variable in explaining the current year's earnings changes after option listing. Our findings are robust after potential confounding factors, such as firm size, financial press coverage, and institutional concentration, are controlled. Overall, the evidence is consistent with the claim that option trading enhances the informativeness of security prices with respect to future accounting earnings.
Author: Yonatan Navon Publisher: ISBN: Category : Languages : en Pages : 382
Book Description
The objective of this thesis is to examine the information content of stock options in financial markets. A key question in financial economics is how information diffuses across markets and how quickly it is reflected in security prices. This thesis aims at exploring this question by investigating the informational role that options play in financial markets. This is achieved by exploring the joint cross section of option and bond prices, the informational role of options in seasoned equity offerings (SEOs), and the information content of options trading prior to announcements of changes to the S&P 500 Index.The thesis comprises three essays, each exploring the information content of equity options trading from a different angle. The first essay examines the joint cross section of option implied volatility and corporate bond returns. Theoretical and empirical work in finance suggests that stocks and bonds of the same issuing firm should share common risk factors. Therefore, new information about a firm should affect both its stock and bond prices. However, if one market offers trading incentives over other markets, informed traders and traders with better ability to process information may choose to trade in that market over the others. As a result, markets that provide advantages to informed traders will incorporate information prior to other markets. The empirical analysis in this chapter reveals that options trading is strongly predictive of corporate bond returns. A strategy of buying (selling) the portfolio with the lowest (highest) changes in option implied volatility yields an average monthly excess bond return of 1.03%. This strategy is statistically highly significant and economically very meaningful and indicates that information is incorporated into option prices prior to bond prices. In contrast, I find no evidence that bond prices incorporate information prior to option or stock prices. Since bond investors are generally sophisticated institutional investors who process information efficiently and the predictive ability of options is persistent, I conclude that informed trading rather than superior information processing abilities is responsible for the predictive ability of options.The second essay explores the information content of option implied volatility around the announcements and issue dates of SEOs. The literature on SEOs indicates that announcements and issue dates contain important information about firms and therefore provide profitable opportunities for traders with private information. While prior research has focused on the information content of short sales around SEOs, this study focuses on the information content of options which can act as an alternative for short selling. The empirical analysis provides evidence of informed trading in the options market around SEO announcements. Around SEO issue dates, I find that higher demand for put options is significantly related to larger issue discounts which is consistent with the manipulative trading hypothesis. The results in this study indicate that regulators should consider extending the short-sale restrictions of Rule 105 to restrict trading in related securities.Finally, the third essay investigates the information content of options prior to the S&P 500 Index inclusion and exclusion announcements. These announcements are unique events since they are not announced by the firm and, as stated by S&P, they should convey no new information. In addition, the large abnormal returns observed following these announcements make them distinctive ground for testing the informational role of options. Consistent with the notion that informed traders operate in the options market, the empirical results in this essay indicate that there is a significant relationship between options trading preceding index inclusion announcements and abnormal returns following these announcements. In contrast, I find no evidence for a relationship between options trading and abnormal returns following exclusion announcements.
Author: Mary Brooke Billings Publisher: ISBN: Category : Languages : en Pages : 47
Book Description
We exploit information in option prices in order to study whether the ex post responsiveness of tock prices to earnings information is reflected from an ex ante, firm- and quarter-specific perspective. Specifically, we develop a measure of anticipated information content (AIC) that isolates the forecasted magnitude of the stock market's reaction to earnings information. We find that the AIC positively correlates with the ex post magnitude of the stock market sensitivity to unexpected earnings, increases with earnings persistence, firm growth prospects, the richness of firms' information environments and the presence of (and changes in) sophisticated ownership, and decreases with discount rates. Our paper sheds light on the role that earnings information plays in shaping option-market behavior and offers researchers an option-market approach to studying the responsiveness of stock prices to earnings information.
Author: C. Jose Garcia Publisher: ISBN: Category : Languages : en Pages : 21
Book Description
This study investigates the informational role of options trading in the price discovery process around the dissemination of accounting information, specifically annual and quarterly earnings announcements. Firstly, we examine the effect of options markets by analyzing stock market reaction to earnings news conditional on the availability of options markets. Secondly, we examine options-trading activity around the release of earnings news. Results show that when options trading is available, the options market enhances the price efficiency of equity markets. Moreover, the dissemination of earnings news is associated with significant unusual activity in the options market due to informed trading, especially when the earnings surprise is highly good.
Author: Ping Zhou Publisher: FT Press ISBN: 0132947404 Category : Business & Economics Languages : en Pages : 258
Book Description
By trading on corporate earnings, investors can reliably profit in both up and down markets, while avoiding market risk for nearly the entire quarter. In this book, two leading traders and portfolio managers present specific, actionable techniques anyone can use to capture these sizable profits. Ping Zhou and John Shon have performed an unprecedented empirical analysis of thousands of stocks, reviewing tens of millions of data points associated with option prices, earnings announcement returns, and fundamentals. Their massive analysis has identified consistent opportunities associated with focusing on the magnitude of the market’s reaction to earnings, not its direction. Option Trading Set-Ups for Corporate Earnings News offers concrete guidance for improving the likelihood of making correct forecasts, and managing the risks of incorrect forecasts. It introduces several ways to exploit option trading opportunities around earnings news, discuss crucial issues that most retail investors haven’t considered, and explore aspects of earnings-related option trading that have never been empirically examined and documented before. For example, they identify hidden patterns and potential opportunities based on valuation, industry, volatility, analyst forecasts, seasonality, and trades that immediately follow earnings announcements. Simply put, trading on earnings reports offers immense profit opportunities, if you know how. This book provides incontrovertible facts and detailed strategies, not just theories and anecdotes!
Author: Li-Chin Jennifer Ho
Author: Li-Chin Jennifer Ho
Author: Douglas John Skinner
Author: Yonatan Navon
Author: Mary Brooke Billings
Author: kaushik i. amin and charles m.c. lee
Author: C. Jose Garcia
Author: 
Author: Ping Zhou
Author: Heather Elise Tookes
Author: