Is Silence The Answer?

• Main Author: Adams, Gator
• Format: Others
• Published: Scholarship @ Claremont 2017
• Subjects: Options; Financial Crisis; Crash Risk; Implied Volatility; Implied Volatility Smirk; Management Guidance; Behavioral Economics; Business; Corporate Finance; Econometrics; Economic History; Economics; Economic Theory; Finance; Finance and Financial Management; Portfolio and Security Analysis; Strategic Management Policy
• Online Access: http://scholarship.claremont.edu/cmc_theses/1606; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=2726&context=cmc_theses

This study examines the relationship between company management guidance, and ex-ante crash risk over the duration of 2008(Jan 2006-Dec 2009) financial crisis using the implied volatility skew, which is based upon ex-ante volatility implied by the pricing model developed by Black-Scholes (1973). The study finds that over the duration of this crisis period, management guidance decreases with a rise in ex-ante crash risk. Further, the study provides evidence on the relationship of management guidance and earnings volatility, and how that is affected by a firm's industry product concentration based on the Herfindahl-Hirschman Index (HHI) score.