Measuring Risk Information

Kevin Smith and Eric C. So
Additional contact information
Kevin Smith: Stanford U
Eric C. So: MIT

Research Papers from Stanford University, Graduate School of Business

Abstract: We develop a measure of how information events impact investors' perceptions of firms' riskiness. We derive this measure from an option-pricing model where investors anticipate an announcement containing information on the mean and variance of firms' future prices. We apply the measure to firms' earnings announcements and show it has many desirable properties: it predicts firms' return volatilities, risk-factor exposures, implied costs of capital, the timing of heightened volatility, and deterioration in fundamental performance, and outperforms textual-based proxies. Together, our study offers an approach for studying risk information conveyed by information events that is simple to implement and broadly applicable.

JEL-codes: G10 G11 G12 G14 M40 M41 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-ore and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3857

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