The information content of implied skewness and kurtosis changes prior to earnings announcements for stock and option returns

Dean Diavatopoulos, James Doran (), Andy Fodor and David R. Peterson

Journal of Banking & Finance, 2012, vol. 36, issue 3, 786-802

Abstract: We use option prices to examine whether changes in stock return skewness and kurtosis preceding earnings announcements provide information about subsequent stock and option returns. We demonstrate that changes in jump risk premiums can lead to changes in implied skewness and kurtosis and are also associated with the mean and variability of the stock price response to the earnings announcement. We find that changes in both moments have strong predictive power for future stock returns, even after controlling for implied volatility. Additionally, changes in both moments predict call returns, while put return predictability is primarily linked to changes in skewness.

Keywords: Earnings announcements; Option prices; Higher-order moments (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426611002664
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:3:p:786-802

DOI: 10.1016/j.jbankfin.2011.09.012

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().