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S. C. Anagnostopoulou, A. Tsekrekos – “Accounting Quality, Information Risk and Implied Volatility around Earnings Announcements”

S. C. Anagnostopoulou, A. Tsekrekos – “Accounting Quality, Information Risk and Implied Volatility around Earnings Announcements”

Abstract: We examine the impact of accounting quality, used as a proxy for information risk, on the behavior of equity implied volatility around quarterly earnings announcements. Using US data during 1996-2010, we observe that lower (higher) accounting quality significantly relates to higher (lower) levels of implied volatility (IV) around announcements. Worse accounting quality is further associated with a significant increase in IV before announcements, and is found to relate to a larger resolution in IV after the announcement has taken place. We interpret our findings as indicative of information risk having a significant impact on implied volatility behavior around earnings announcements.