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Author: Natalie Benz Publisher: ISBN: Category : Languages : en Pages :
Book Description
This master's thesis provides a comprehensive analysis of the behavior and influences of the S&P stock composition on implied volatility during earnings announcements that cover the period from 1996 to 2015. While prior studies have found that implied volatility increases in the pre-event period before an announcement, this thesis shows that implied volatility increases as soon as the announcement day is included in the lifetime of an option. In a liquid market, where information is processed much faster, the expectation of increased volatility is included in the lifetime of an option earlier and prevents an actual short-term updrift from occurring. Such liquid markets also exhibit some small deviations of implied volatility in the pre-announcement period, with increased uncertainty of the outcome of earnings announcements and divergent analyst forecasts. Cross-section regressions further reveal that relative drifts of implied volatility during earnings announcements are significantly explained not only by macroeconomic factors but also by the number of open contracts and the attention paid by investors and analysts. In a time when the CBOE Volatility Index (VIX) level is low and the spread between historical and implied volatility is high, overestimation of future volatility additionally leads to a stronger increase of drift.
Author: Natalie Benz Publisher: ISBN: Category : Languages : en Pages :
Book Description
This master's thesis provides a comprehensive analysis of the behavior and influences of the S&P stock composition on implied volatility during earnings announcements that cover the period from 1996 to 2015. While prior studies have found that implied volatility increases in the pre-event period before an announcement, this thesis shows that implied volatility increases as soon as the announcement day is included in the lifetime of an option. In a liquid market, where information is processed much faster, the expectation of increased volatility is included in the lifetime of an option earlier and prevents an actual short-term updrift from occurring. Such liquid markets also exhibit some small deviations of implied volatility in the pre-announcement period, with increased uncertainty of the outcome of earnings announcements and divergent analyst forecasts. Cross-section regressions further reveal that relative drifts of implied volatility during earnings announcements are significantly explained not only by macroeconomic factors but also by the number of open contracts and the attention paid by investors and analysts. In a time when the CBOE Volatility Index (VIX) level is low and the spread between historical and implied volatility is high, overestimation of future volatility additionally leads to a stronger increase of drift.
Author: Sean Cao Publisher: ISBN: Category : Languages : en Pages : 45
Book Description
We find that lower ex-ante earnings volatility leads to higher Post-Earnings Announcement Drift (PEAD). PEAD is a function of both the magnitude of an earnings surprise and its persistence. While prior research has largely investigated market reactions to the magnitude of the earnings surprise, in this study we show that the persistence of the earnings surprise is equally important. A unique feature of the anomalous PEAD returns documented in this study concerns the association between abnormal returns and trading frictions. Besides documenting that firms with lower earnings volatility have higher abnormal returns, we also find that lower earnings volatility firms have lower trading frictions. Taken together, these findings imply that higher abnormal returns are associated with lower trading frictions. We exploit this implication to empirically demonstrate that PEAD returns due to earnings volatility are not concentrated in the firms with the largest trading frictions, which is in contrast to the findings in prior anomaly studies.
Author: Qin Lei Publisher: ISBN: Category : Languages : en Pages : 43
Book Description
Using a broad sample of earnings announcements, we find that option call and put implied volatilities become increasingly misaligned as the earnings announcement dates (EAD) get closer. The percentage deviation between call and put implied volatilities increases monotonically in the one-month period leading up to the EAD. In addition, the direction of these deviations is consistent with the announcement returns of such earnings releases. More importantly, by adapting the earnings response coefficient (ERC) framework, we find that pre-earnings option trading actually increases rather than decreases the stock market response to the earnings announcements. In a cross section of earnings announcements, we find stronger stock market reaction from earnings announcements with greater abnormal implied volatility spread immediately before the EAD. By relating option volume to investor attention, we find higher pre-announcement option volume is associated with increased stock market response. Overall, our findings suggest that pre-earnings option trading helps alleviate the stock market under-reaction to earnings announcements and make the stock market response more complete.
Author: Ping Zhou Publisher: Financial Times/Prentice Hall ISBN: 9780132947398 Category : Corporate profits Languages : en Pages : 0
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: 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: Yigit Atilgan Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
Prior research documents that volatility spreads predict stock returns. If the trading activity of informed investors is an important driver of volatility spreads, then the predictability of stock returns should be more pronounced during major information events. This paper investigates whether the predictability of equity returns by volatility spreads is stronger during earnings announcements. Volatility spreads are measured by the implied volatility differences between pairs of strike price and expiration date matched put and call options and capture price pressures in the option market. During a two-day earnings announcement window, the abnormal returns to the quintile that includes stocks with relatively expensive call options is more than 1.5 percent greater than the abnormal returns to the quintile that includes stocks with relatively expensive put options. This result is robust after measuring volatility spreads in alternative ways and controlling for ጿirm characteristics and lagged equity returns. The degree of announcement return predictability is stronger when volatility spreads are measured using more liquid options, the information environment is more asymmetric, and stock liquidity is low.
Author: Leonard Zacks Publisher: John Wiley & Sons ISBN: 1118127765 Category : Business & Economics Languages : en Pages : 352
Book Description
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Author: Bernard Dumas Publisher: ISBN: Category : Options (Finance) Languages : en Pages : 34
Book Description
Abstract: Black and Scholes (1973) implied volatilities tend to be systematically related to the option's exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black-Scholes constant volatility assumption is violated in practice. These authors hypothesize that the volatility of the underlying asset's return is a deterministic function of the asset price and time and develop the deterministic volatility function (DVF) option valuation model, which has the potential of fitting the observed cross-section of option prices exactly. Using a sample of S & P 500 index options during the period June 1988 through December 1993, we evaluate the economic significance of the implied deterministic volatility function by examining the predictive and hedging performance of the DV option valuation model. We find that its performance is worse than that of an ad hoc Black-Scholes model with variable implied volatilities.
Author: Natalie Benz
Author: Natalie Benz
Author: Sean Cao
Author: Qin Lei
Author: Daniella Acker
Author: Ping Zhou
Author: Ping Zhou
Author: Siu Kai Choy
Author: Yigit Atilgan
Author: Leonard Zacks
Author: Bernard Dumas