scholarly journals Informed Trading around Stock Split Announcements: Evidence from the Option Market

2017 ◽  
Vol 52 (2) ◽  
pp. 705-735 ◽  
Author(s):  
Philip Gharghori ◽  
Edwin D. Maberly ◽  
Annette Nguyen
Keyword(s):  
Stock Prices ◽  
Stock Return ◽  
Implied Volatility ◽  
Abnormal Returns ◽  
Informed Trading ◽  
Return Volatility ◽  
Stock Volatility ◽  
Stock Return Volatility ◽  
Weak Evidence ◽  
Abnormal Increase

Prior research shows that splitting firms earn positive abnormal returns and that they experience an increase in stock return volatility. By examining option-implied volatility, we assess option traders’ perceptions on return and volatility changes arising from stock splits. We find that they do expect higher volatility following splits. There is only weak evidence, though, of option traders anticipating an abnormal increase in stock prices. We also show that our option measures can predict both stock volatility levels and changes after the announcement. However, there is little evidence that they can predict the returns of splitting firms.

scholarly journals Impact of Merger and Acquisition Announcements on Stock Return, Volatility and Liquidity of Acquirers: Evidence from the Indian Banking Sector

2020 ◽  
Vol 19 (1) ◽  
Author(s):  
Pinky Mal ◽  
Keyword(s):  
Event Study ◽  
Stock Prices ◽  
Stock Return ◽  
Banking Sector ◽  
Abnormal Returns ◽  
Merger And Acquisition ◽  
Stock Volatility ◽  
Study Methodology ◽  
Acquisition Announcements ◽  
Event Study Methodology

This study attempts to examine the stock behaviour of acquirer banks during pre and post-merger and acquisition (M&A) announcement period in the Indian banking sector. Data of M&A events that took place in the Indian banking sector during 2000-2018 was collected from the prowessdx database. The sample consisted of 31 merger and 351 acquisition announcements during 2000-2018 in the Indian Banking sector. Stock prices of sample banks were extracted from the NSE for an event window of -10 to +10 days and the event study methodology was used for analysis. The results suggest that shareholders of Indian acquirer banks generate small and insignificant abnormal returns from M&A deals. Return variability was also noticed from the curvy jumps in the average abnormal spread of returns during the announcement period. Whereas, the average abnormal change in liquidity witnessed a sharp hike on day 0 i.e. the date of deal announcement and it remained negative throughout the post-deal period. KEYWORDS: Mergers and Acquisitions, Stock Return, Stock Volatility, Stock Liquidity, Event Study Methodology.

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices?

2020 ◽  
Author(s):  
Sophie X Ni ◽  
Neil D Pearson ◽  
Allen M Poteshman ◽  
Joshua White
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Stock Return ◽  
Return Volatility ◽  
Equity Prices ◽  
Option Trading ◽  
Stock Return Volatility ◽  
Market Makers ◽  
Options Trading ◽  
Option Market

Abstract The question of whether and to what extent option trading affects underlying stock prices has been of interest to researchers since exchange-based options trading began in 1973. Recent research presents evidence of an informational channel through which option trading affects stock prices by showing that option market makers’ stock trades to hedge new options positions cause the information reflected in option trading to be impounded into underlying equity prices. This paper provides evidence of a noninformational channel through which option market maker hedge rebalancing affects stock return volatility and the probability of large stock price moves.

The effects of corporate governance on the stock return volatility

2018 ◽  
Vol 60 (2) ◽  
pp. 478-495 ◽  
Author(s):  
Mouna Aloui ◽  
Anis Jarboui
Keyword(s):  
Corporate Governance ◽  
Stock Prices ◽  
Stock Return ◽  
Market Value ◽  
Independent Directors ◽  
Return Volatility ◽  
Debt Ratio ◽  
Outside Directors ◽  
Content Type ◽  
Stock Return Volatility

Purpose The purpose of this study is to investigate the relationship between the stock return volatility, the outside and the independent directors. Design/methodology/approach The volatility, as the dependent variable in the model, is measured by the standard deviation of annual stock returns. Concerning the independent variable is as follows: The chief executive officer (CEO) is a dummy variable denoting whether or not the chairman of the board holds the position of CEO. The INDD, which represents the independent directors, is measured according to whether the firm appoints independent directors, or by the ratio of independent directors. The FD, which represents the outside directors, is measured according to whether the firm appoints outside directors, or by the ratio of outside directors. In addition, the authors also add the following five control variables to the regression model: the certified public accountant refers to the auditor-related variables including the audit opinion and whether the firm has previously switched accounting firms. The performance (PER) represents the firm performance in terms of the relative return on assets (ROA). The turnover (TURN) is measured by the natural log of the total liabilities. The SIZE is measured by the natural log of the market value of equity, and the leverage ratio (LEV) is the firm’s debt ratio measured by the ratio of total. The TURN is measured by the natural log of the total liabilities. The SIZE is measured by the natural log of the market value of equity and the LEV is the firm’s debt ratio measured by the ratio of total debt to total assets. The sample comprises 89 firms listed on the SBF 120 index over 2006-2012. Findings Results reveal that the outside directors have a positive and significant effect on the stock return volatility. Moreover, the firm’s size and ROA have a negative effect on the stock return volatility, which is clearly evidenced in all the regressions. On the other hand, the CEO, audit size and debt ratio have statically significant and positive effects on the stock return volatility. Originality/value This study indicates the importance of corporate governance and helps investors and financial economists understand the behavior of the stock prices during a financial crisis. Although the existing studies refer to the influence of corporate governance on the stock prices during a crisis, none of these has ever discussed whether better corporate governance can help reduce the stock price volatility in such a situation.

scholarly journals Politically Connected Firms and Their Stock Return Volatility during High-Visibility Events: Evidence from Malaysia

2021 ◽  
Vol 22 (3) ◽  
pp. 1449-1468
Author(s):  
Wai-Yan Wong ◽  
Chee-Wooi Hooy
Keyword(s):  
Stock Return ◽  
General Election ◽  
Return Volatility ◽  
Political Connection ◽  
Government Budget ◽  
Stock Volatility ◽  
Listed Firms ◽  
Stock Return Volatility ◽  
The Government ◽  
The Relationship

This study investigates the relationship between political connection and firm stock volatility. We examine whether stock return volatility of politically connected firms differ from non-connected firms during four events. These four events are general election, change of leadership, announcement of government budget, and announcement of policies by the government. This paper uses a volatility event study technique to calculate the abnormal stock return volatility during the four events. We use the data of public-listed firms in Malaysia from 2002 to 2013. The result shows that political connection is associated with higher stock volatility in certain events. They appear to be the most volatile in the event of general election and least volatile during budget announcement. Besides budget announcement, the other three events showed a stronger volatility as they are considered as more of a surprise announcement rather than scheduled announcement. The paper adds to a limited body of literature investigating the relationship between political connection and market behavior in Malaysia and hopes to show that political connection can impact the stock return volatility of firms during high-visibility events in Malaysia.

Positive Tone in Management Reports and Volatility of Stock Returns

2021 ◽  
pp. 097215092110542
Author(s):  
Rodrigo Fernandes Malaquias ◽  
Dermeval Martins Borges Júnior
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Return Volatility ◽  
Stock Volatility ◽  
Financial Reports ◽  
Stock Return Volatility ◽  
Daily Stock Returns ◽  
Disclosure Tone ◽  
Textual Content ◽  
And Control

This article aims to analyse the effects of positive tone in management reports on stock return volatility. It is expected that this article contributes to the literature about disclosure by proposing an objective textual content analysis of management reports, focussing on optimistic words or expressions employed by firms and their effect on stock return volatility. The sample consisted of management reports and financial data from 576 different Brazilian firms’ stocks. Regarding volatility, our measure is based on daily stock returns from 1 April 2011 to 23 October 2020. The data related to positive tone and control variables were based on the fiscal years 2010–2019. Therefore, the database contains 3,945 stock-year observations. The study hypothesis was tested through a regression model with panel data. The main results suggest that companies with higher positive disclosure tone scores do not necessarily present lower stock return volatility in the subsequent period. The objective content of financial reports (for example, in relation to profitability) seems to be related to stock volatility; however, the tone of subjective expressions does not represent the main determinant of stock volatility.

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