Intra-industry information transfers: evidence from changes in implied volatility around earnings announcements

Rebecca N. Hann (), Heedong Kim () and Yue Zheng ()
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Rebecca N. Hann: University of Maryland
Heedong Kim: City University of New York
Yue Zheng: The Hong Kong University of Science and Technology

Review of Accounting Studies, 2019, vol. 24, issue 3, No 6, 927-971

Abstract: Abstract We examine whether there is intra-industry information transfer with respect to the second moment of returns around earnings announcements. Using implied volatility from option prices to proxy for uncertainty about firm fundamentals, we find a significantly positive association between changes in the implied volatility of each industry’s first announcer and its peers around the first announcer’s earnings announcement, suggesting that earnings announcements help resolve uncertainty about the value of not only the announcing firm but also its peers. This result holds after controlling for information transfer with respect to the first moment of returns. We further find that the extent of second-moment information transfer is stronger for long-duration options, when the announcer has higher earnings quality, reports positive earnings news, or is a bellwether firm and during periods of greater macroeconomic uncertainty. Our findings suggest that peers’ earnings announcements represent an important disclosure that conveys timely information about industry uncertainty.

Keywords: Second-moment information transfer; Implied volatility; Volatility risk; Uncertainty; Earnings announcements (search for similar items in EconPapers)
JEL-codes: D83 G13 G14 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s11142-019-9487-1

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