Download or read book The Information Content of Option-Implied Tail Risk on Post-Earnings Abnormal Stock Returns written by Mengxi (Maggie) Liu and published by . This book was released on 2018 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that option-implied jump tail risk estimated prior to earnings announcements strongly predicts post-earnings risk-adjusted abnormal stock returns. The predictive power of implied jump tail risk is particularly strong on extreme abnormal stock returns whose absolute values exceed 10%. The finding is robust to various event windows and after controlling for model-free implied moments of variance, skewness and kurtosis. We argue that the tail risk implied from options preceding earnings news releases reflects a sudden flood of information of informed traders and investors, and this results in the tail risk usefully predicting abnormal stock returns. Finally, we show that upside and downside tail risk contain distinctive predictive information, with upside (downside) tail risk strongly predicting positive (negative) abnormal stock returns.