THE IMPACT OF FIRM SPECIFIC NEWS ON IMPLIED VOLATILITIES

Authors
DONDERS MWM VORST TCF
Citation
Mwm. Donders et Tcf. Vorst, THE IMPACT OF FIRM SPECIFIC NEWS ON IMPLIED VOLATILITIES, Journal of banking & finance, 20(9), 1996, pp. 1447-1461
Citations number
21
Categorie Soggetti
Business Finance",Economics
Journal title
Journal of banking & finance → ACNP
ISSN journal
03784266
Volume
20
Issue
9
Year of publication
1996
Pages
1447 - 1461
Database
ISI
SICI code
0378-4266(1996)20:9<1447:TIOFSN>2.0.ZU;2-I
Abstract
We study the implied volatility behavior of call options around schedu led news announcement days. Implied volatilities increase significantl y during the pre-event period and reach a maximum on the eve of the ne ws announcement. After the news release, implied volatility drops shar ply and gradually moves back to its long-run level. Only on the event date are movements in the price of the underlying significantly larger than expected. These results confirm the theoretical results of Merto n (1973).