Effect of Option Listing on Price Reactions to Earnings Announcements

Download or read book Effect of Option Listing on Price Reactions to Earnings Announcements written by Sunyoung Kim and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effect of option listing on the stock-price response to quarterly earnings announcements. We find that option trading reduces the magnitude of the pre-earnings announcement drift. We also present evidence that firms with options exhibit more intensive price reactions to earnings news than firms without options. In addition, we show that the magnitude of the post-earnings announcement drift is smaller for option firms than non-option firms. These results suggest that the existence of traded options increases the speed of stock price adjustment. Overall, our results reinforce the notion that option listing improves the informational efficiency in equity markets. In addition, our results are consistent with the view that transactions costs cause a delayed price response in the post-earnings announcement period.