Informational content of options around analyst recommendations

Purpose More studies have investigated the relation between option measures and stock returns during scheduled corporate events. This study adds to literature investigates informational role of options concerning following unscheduled news The authors focus on individual analysts' recommendation changes rather than consensus revisions, as might discard a large amount potentially valuable information in aggregation process. Design/methodology/approach Based econometric model, follow Bakshi et al. (2003) construct model-free implied measures. further decompose variance into upside downside components. In such way, different roles call put can be distinguished. A variety regression analyses are conducted examine predictive power measures, ordered probit model is used test tipping hypothesis analyst recommendations. Findings study’s results show that market impounds “valuable” firm-specific news; thus, pre-event strongly related around recommendations even though largely “unscheduled”. At same time, these suggest (good) (bad) volatilities contain distinctive subsequent returns. Originality/value provides new evidence an increase (downside) volatility would probability analysts upgrade (downgrade) stock. findings provide implications for investors risk managers making investment decisions.