We study the implied volatility behavior of call options around scheduled news announcement days. Implied volatilities increase significantly during the pre-event period and reach a maximum on the eve of the news announcement. After the news release, implied volatility drops sharply and gradually moves back to its long-run level. Only on the event date are movements in the price of the underlying significantly larger than expected. These results confirm the theoretical results of Merton (1973).

doi.org/10.1016/S0378-4266(96)00011-8, hdl.handle.net/1765/69503
Journal of Banking & Finance
Erasmus School of Economics

Donders, M., & Vorst, T. (1996). The impact of firm specific news on implied volatilities. Journal of Banking & Finance, 20(9), 1447–1461. doi:10.1016/S0378-4266(96)00011-8