Option pricing of earnings announcement risks

Andrew Dubinsky, Michael Johannes, Andreas Kaeck, Norman J. Seeger

Research output: Contribution to JournalArticleAcademicpeer-review

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.

Original languageEnglish
Pages (from-to)646-687
Number of pages42
JournalReview of Financial Studies
Volume32
Issue number2
DOIs
Publication statusPublished - Feb 2019

Fingerprint

Earnings announcements
Option pricing
Price uncertainty
Estimator
Option pricing model
Option prices
Return volatility
Equity prices
Reduced-form model

Bibliographical note

Published (online): 22 May 2018

Keywords

  • Earnings announcements
  • anticipated uncertainty
  • equity options
  • implied volatility

Cite this

Dubinsky, Andrew ; Johannes, Michael ; Kaeck, Andreas ; Seeger, Norman J. / Option pricing of earnings announcement risks. In: Review of Financial Studies. 2019 ; Vol. 32, No. 2. pp. 646-687.
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Option pricing of earnings announcement risks. / Dubinsky, Andrew; Johannes, Michael; Kaeck, Andreas; Seeger, Norman J.

In: Review of Financial Studies, Vol. 32, No. 2, 02.2019, p. 646-687.

Research output: Contribution to JournalArticleAcademicpeer-review

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