Date of Award

Spring 6-4-2026

Document Type

Thesis (Undergraduate)

Department

Economics

First Advisor

Bruce Sacerdote

Abstract

This paper investigates whether option-implied variance asymmetry, defined as the difference between upside and downside risk-neutral semivariances measured shortly before scheduled quarterly earnings announcements pre- dicts the cumulative abnormal return realized over the announcement win- dow. We find implied variance asymmetry positively and significantly pre- dicts announcement-window returns in S&P 500 companies: the high-minus- low quintile sort portfolio earns 45 basis points over a five-day window with a Fama-French four-factor alpha of 60 basis points, both statistically signif- icant. The results suggest a temporary break in market efficiency and are consistent with an informed-trading interpretation in which earnings specific information is priced into short dated options immediately before the earn- ings announcement.

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