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Asymmetric Uncertainty Around Earnings Announcements: Evidence from Options Markets

Year: 2024

Type: article

Abstract: We use the Indian stock options market to study the evolution of uncertainty and asymmetric uncertainty around earnings announcements (EAs). We find that uncertainty (implied volatility) and asymmetric uncertainty (options skew) increase monotonically before the EA day and decrease after EA. Options volume (relative to spot and to futures) also exhibits similar behavior, suggesting that informed investors prefer options markets to spot and futures markets. Both options skew and put-to-call volume ratio can predict the sign of the EA surprise one day before EA, indicating that price discovery and information assimilation happen in the options market.

Source: American Business Review

DOI: 10.37625/abr.27.2.459-487

Authors: Sumit Saurava, Sobhesh Kumar Agarwalla, Jayanth R. Varma

Institutions: Indian Institute of Management Bangalore, Indian Institute of Management Ahmedabad

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: diamond

OpenAlex ID: W4404259064

FWCI:

Cites: 47

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Related to: 10