ISSN: 2225-8329
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This study investigates the impact of equity options trading volume on stock price response to earnings announcements, with respect to S&P 100 listed companies whose options are actively traded on the CBOE market from 2010 to 2017. The data of 90 companies over an eight-year period has been accessed and a quantitative approach is followed in the analysis. In the period after the crisis of 2008, the financial environment has changed substantially: market volatility and interest rates are lower. Panel data regressions are conducted to estimate the impact of options trading volumes, on stock price response to earnings announcements after controlling for size and book to market ratio. This study calculates abnormal returns from stock price response on a risk adjusted basis, unlike previous studies on this topic. The findings are different from studies conducted in the pre-crisis period. Whereas previous research found that call option trading volumes had the most significant effect on stock price reaction to earnings announcements, the current research showed that put option trading volumes have the more significant effect in the post-crisis financial environment. Smaller companies with lower option trading volumes are also found to have larger immediate stock price response to earnings announcements. Again, when the element of earnings surprise is taken into account, the earnings response coefficient (the interactions of the earnings surprise variable on other variables) is found to be significantly relevant for all option trading volumes and highest for put option trading volumes, emphasizing the importance of put options in the environment following the crisis. The results from this study conducted in the post crisis period, add to the literature on the impact of option trading volumes on stock price responses to earnings’ announcements and choices of derivative instruments made by market participants in the post crisis era. No such studies studying these effects have been published in the post crisis era.
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To cite this article: Huynh, T. K., Shenai V. (2019). Option Trading Volumes and Their Impact on Stock Prices at Earnings’ Announcements: A Study of S&P100 Stocks in the Post Crisis Era 2010-2017, International Journal of Academic Research in Accounting, Finance and Management Sciences 9(3): 83-103.
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