Asymmetric Uncertainty Around Earnings Announcements: Evidence from Options Markets

Sumit Saurav, Sobhesh Kumar Agarwalla and Jayanth R. Varma
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Sumit Saurav: Indian Institute of Management Bangalore, Karnataka, India
Sobhesh Kumar Agarwalla: Indian Institute of Management Ahmedabad, Gujarat, India
Jayanth R. Varma: Indian Institute of Management Ahmedabad, Gujarat, India

American Business Review, 2024, vol. 27, issue 2, 459-487

Abstract: We use the Indian stock options market to study the evolution of uncertainty and asymmetric uncertainty around earnings announcements (EAs). We find that uncertainty (implied volatility) and asymmetric uncertainty (options skew) increase monotonically before the EA day and decrease after EA. Options volume (relative to spot and to futures) also exhibits similar behavior, suggesting that informed investors prefer options markets to spot and futures markets. Both options skew and put-to-call volume ratio can predict the sign of the EA surprise one day before EA, indicating that price discovery and information assimilation happen in the options market.

Keywords: Earnings Announcements; Volatility Smile; Earnings Surprise; Options Volume; Emerging Markets (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2024
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