Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets

Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets ABSTRACT This paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices. Extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior. As an alternative, we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options. We find the two samples exhibit different adjustment processes, with the nonoption firms requiring substantially more time to adjust. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets

The Journal of Finance, Volume 41 (1) – Mar 1, 1986

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Publisher
Wiley
Copyright
1986 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1986.tb04494.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices. Extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior. As an alternative, we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options. We find the two samples exhibit different adjustment processes, with the nonoption firms requiring substantially more time to adjust.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1986

References

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