The paper ‘Option Pricing of Earnings Announcement Risks’ by candidate fellow Norman Seeger (VU Amsterdam) and co-authors Andrew Dubinsky (Goldman, Sachs & Co, United States), Michael Johannes (Columbia University, United States), and Andreas Kaeck (University of Sussex, United Kingdom) is forthcoming in The Review of Financial Studies. Read full paper here.

Norman Seeger

Abstract

This paper uses option prices to learn about the equity price uncertainty surrounding information released on earnings announcement dates. To do this, we introduce reduced-form models and estimators to separate price uncertainty about earnings announcements from normal day-to-day volatility. Empirically, we find strong support for the importance of earnings announcements. We find that the anticipated price uncertainty is quantitatively large, varies across time, and is informative about the future return volatility. Finally, we quantify the impact of earnings announcements on formal option pricing models.

JEL Classification: G12 – Asset Pricing; Trading volume; Bond Interest Rates C53 – Forecasting and Prediction Methods; Simulation Methods G13 – Contingent Pricing; Futures Pricing

Article Citation: Andrew Dubinsky, Michael Johannes, Andreas Kaeck, and Norman J Seeger,
‘Option Pricing of Earnings Announcement Risks,’ The Review of Financial Studies, forthcoming.