The impact of new information on the return in shares and the implicit volatility in call options - An Event-Study

Abstract: This essay explains the relation between the return on a company’s stock and the implicit volatility in its call option on one hand and the impact new information has on these on the other hand. The purpose with this essay is to explain how the Swedish Share Market and Option Market react on new information in the context of quarterly reports and investigate if there is any abnormal return on the selected shares during this period. The study will also observe if it exists any abnormality in the implicit volatility in the company’s call option. To investigate this properly; an Event Study will be performed and a significance test and a cross sectional analysis will be used. The conclusion of the study shows, in line with previous studies conducted by Pramborg&Hagelin, that there is a divergence the time around the report date. As shown in the figures and in the significance test, there is an abnormal return in shares the period around a report date. This however is an one-time adjustment to the new information being released on the market. The same pattern can be seen in the implicit volatility in the respective share’s call option.