Arjun K M, Mizuho, Formerly NYU Tandon School
Professor Mike Lipkin, NYU Tandon School
Professor Leon Tatevossian, NYU Tandon School
Published in Journal of Risk, January 2025
Wall Street Horizon Abstract
In this paper, the authors examine the relationship between listed American stock price moves after earnings announcements and pre-earnings implied volatility. Specifically, the study focuses on short-expiry and intermediate-expiry implied volatility on the business day prior to the earnings date. Raw returns are highly fat-tailed; by the authors’ choice of measure, they are strongly peaked about the origin with 2.5% in each of the tails. Using implied volatility data, the study predicts the magnitude of returns in the earnings window and find that the options market generally predicts the price impact of earnings events well, with some outliers. The distribution of returns over the earnings window is symmetric, with equal incidence of up and down moves. Full abstract and download.