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Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets
Author(s) -
JENNINGS ROBERT,
STARKS LAURA
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb04494.x
Subject(s) - extant taxon , earnings , stock price , stock (firearms) , economics , financial economics , monetary economics , stock market , econometrics , accounting , mechanical engineering , paleontology , horse , evolutionary biology , series (stratigraphy) , engineering , biology
This paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices. Extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior. As an alternative, we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options. We find the two samples exhibit different adjustment processes, with the nonoption firms requiring substantially more time to adjust.