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Informed Trading Around Earnings Announcements: Another Look

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  • Dennis J. Whalen
  • Charles D. Collver

Abstract

This study is an empirical test of the Easley, O'Hara, and Srinivas (1998) multimarket sequential trade model of stock and option markets. We employ two approaches to determine the information content of signed stock and option trades executed around quarterly earnings announcements. The first approach expands the vector autoregression (VAR) technique of Hasbrouck (1991a) to include signed option trade volumes and inter‐trade durations. Estimates from the VAR models provide insight into whether both equity and option trades are viewed as informative by the equity specialist. The second approach focuses on the information content of the earnings releases to determine whether signed equity and option trades executed prior to the announcements are informed. Results indicate that although informed traders prefer to transact in both markets around earnings announcements, option market transactions contain no incremental information.

Suggested Citation

  • Dennis J. Whalen & Charles D. Collver, 2004. "Informed Trading Around Earnings Announcements: Another Look," The Financial Review, Eastern Finance Association, vol. 39(3), pages 409-434, August.
    • Handle: RePEc:bla:finrev:v:39:y:2004:i:3:p:409-434
    DOI: 10.1111/j.0732-8516.2004.00082.x
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    References listed on IDEAS

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