Option listing and the stock-price response to earnings announcements1
Richard R. Mendenhall, Donald H. Fehrs
Journal of Accounting and Economics · 1999 · Volume 27 · Issue 1
DOI: 10.1016/S0165-4101(98)00045-7
Abstract
We examine the effect of option listing on the immediate stock-price response to earnings announcements. Contrary to prior studies using earlier data, we find firms initiating option trading after 1986 fail to exhibit a significant decline in earnings response. We then examine 420 firms initiating option trading during 1973–1993. In a series of tests controlling for market-wide effects and changing firm size we find some evidence that option listing may actually increase the stock-price response to earnings, but no evidence listing reduces the response. Both longitudinal and cross-sectional tests produce similar results.
Keywords
Market efficiency, Earnings, Options
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