Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements
Name
non-diversifiable-volatility-Eric-So.pdf
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1.02 MB
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Adobe PDF
Checksum (MD5)
54a07c944e3f46ebcbc374a1bb4051ec
Author(s)
Barth, Mary E.
So, Eric
Date Issued
March 2014
Journal
The Accounting Review
Publisher
American Accounting Association
Citation
Barth, Mary E., and So, Eric C. “Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements.” The Accounting Review 89, 5 (September 2014): 1579–1607
Version
Original manuscript
Abstract
This study seeks to determine whether earnings announcements pose non-diversifiable volatility risk that commands a risk premium. We find that investors anticipate some earnings announcements to convey news that increases market return volatility and pay a premium to hedge this non-diversifiable risk. In particular, we find evidence of risk premiums embedded in prices of firms' traded options that are significantly positively associated with the extent to which the firms' earnings announcements pose non-diversifiable volatility risk. In addition, we find that volatility risk premiums are concentrated among bellwether firms and result in predictable variation in option straddle returns around earnings announcements. Taken together, our findings show that some earnings announcements pose non-diversifiable volatility risk that commands a risk premium.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.2308/accr-50758
