Stock price distributions and news:evidence from index options
Steeley, James M.;
We estimate the shape of the distribution of stock prices using data from options on the underlying asset, and test whether this distribution is distorted in a systematic manner each time a particular news event occurs. In particular we look at the response of the FTSE1... View more
1.See alsoKing(1966). Applications ofthe Chen,Roll and Rosstwo-step procedure totheU.K. stock market include Beenstock and Chan (1988), Poon and Taylor (1991), Clare and Thomas (1994) and Cheng (1995). In addition, Priestley (1996), applies the one-step method of Burmeister and McElroy (1988).
2. Some recent studies in this area include, Graham et al (2003), Kim et al (2004) and Nikkinen and Sahlstrom (2004a,b).
4. See, for example, Hull and White (1987), Heston (1993), Duan (1995), and Heston and Nandi (1997).
5. Corrado and Su (1996) and Backus, Foresi, Li and Wu (1997) have, independently, suggested using Gram-Charlier expansions to price options under skewness and excess kurtosis.
6. Evidence that mixture distributions more generally may be able to explain the non-normality of returns can be found in Clark (1973), Tauchen and Pitts (1983), Lamoureux and Lastrapes (1993) and Richardson and Smith (1994).
7. For a survey of additional applications of this and other methods of estimating implied distributions from options, see Jackwerth (1999).
Acker, D., (2002) Implied Standard deviations and post-earnings announcement volatility, Journal of Business Finance and Accounting, 29, 429-456.
Backus, D., S. Foresi, K. Li, and L. Wu (1997) "Accounting for biases in Black-Scholes", working paper, NYU.
Bailey, W., (199) Money supply announcements and the ex ante volatility of asset prices, Journal of Money, Credit and Banking, 20, 611-620.
Beenstock M. and K. Chan (1988), "Economic forces in the London stock market", Oxford Bulletin of Economics and Statistics, 50, 27-39.