EconPapers    
Economics at your fingertips  
 

Accounting quality, information risk and the term structure of implied volatility around earnings announcements

Seraina Anagnostopoulou and Andrianos Tsekrekos

Research in International Business and Finance, 2017, vol. 41, issue C, 445-460

Abstract: We examine the association between accounting quality, which is used as a proxy for firm information risk, and the behavior of the term structure of implied option volatility around earnings announcements. By employing a large sample of US firms having options traded on their equity during 1996–2010, we find that lower (higher) accounting quality is significantly associated with stronger (weaker) changes in the steepness of the term structure of implied volatility curve around quarterly earnings announcements. This finding (which is robust to controls for business-stemming uncertainty regarding future firm performance) is consistent with a stronger differential of short vs. long-term uncertainty for higher information risk firms, indicating greater uncertainty on the future economic performance of poorer vs. stronger accounting quality firms. We also establish the trading implications of these findings by demonstrating a (profitable in-sample) self-financed option trading strategy that is based on the quality of the accounting information released on earnings announcement days.

Keywords: Accounting quality; Information risk; Term structure of implied volatility; Earnings announcements (search for similar items in EconPapers)
JEL-codes: G13 G14 M41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531917301435
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:riibaf:v:41:y:2017:i:c:p:445-460

DOI: 10.1016/j.ribaf.2017.04.046

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-07-02
Handle: RePEc:eee:riibaf:v:41:y:2017:i:c:p:445-460