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Trading volume and open interest from options markets as measures of the effect of IT announcements

Author

Listed:
  • Dawei Zhang

    (Lehigh University)

  • Matthew Lyle

    (Emory University)

  • Barrie R. Nault

    (University of Calgary)

Abstract

We explore how using trading volume and open interest data on IT investment announcements from options markets provide improved information to investors relative to trading volume from stock markets. We first establish through investigating changes in trading volume and open interest in the option market, and changes in trading volume in the stock market, that IT announcements are informative to investors such that they act on the underlying securities. Second, we find that the option market captures such informativeness earlier than the stock market, and that the option market generates a greater response to information from IT announcements than the stock market. Third, the option market’s response allows us to distinguish investors’ response in the short and long terms: we find IT announcements mainly convey information about expected firm value in the short term, and less in the long term. Finally, we show that good-news IT announcements are more informative than bad-news and no-news announcements. Thus, for firms with options, using option market trading volume and open interest dominates stock market trading volume when examining the effects of IT announcements.

Suggested Citation

  • Dawei Zhang & Matthew Lyle & Barrie R. Nault, 2024. "Trading volume and open interest from options markets as measures of the effect of IT announcements," Information Technology and Management, Springer, vol. 25(2), pages 113-123, June.
    • Handle: RePEc:spr:infotm:v:25:y:2024:i:2:d:10.1007_s10799-023-00413-y
    DOI: 10.1007/s10799-023-00413-y
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