Abstract
This study represents an empirical analysis of free trading options (FTOs), options that arise due to the arrival of adverse information. The analysis purports to measure three characteristics of these options: (i) the probability of the option ending in-the-money as a consequence of adverse information arrival, (ii) the value of the free trading option and (iii) the time taken for the free trading option to become in the money (its duration). The empirical methodology was applied to 163 earnings announcements on the Australian Stock Exchange (ASX) and a number of limit order strategies investigated. The results show that such free trading options do exist, and have value dependent particularly on trading volume, firm size and pre-announcement bid-ask spread.
| Original language | English |
|---|---|
| Pages (from-to) | 573-591 |
| Number of pages | 19 |
| Journal | Pacific Basin Finance Journal |
| Volume | 11 |
| Issue number | 5 |
| DOIs | |
| Publication status | Published - Nov 2003 |
| Externally published | Yes |