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The option market reaction to bank loan announcements

Anagnostopoulou, S. C., Ferentinou, A. C., Tsaousis, P. A. and Tsekrekos, A. E. (2018) The option market reaction to bank loan announcements. Journal of Financial Services Research, 53 (1). pp. 99-139. ISSN 1573-0735

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To link to this item DOI: 10.1007/s10693-016-0243-4


In this study, we examine the options market reaction to bank loan announcements for the population of US firms with traded options and loan announcements during 1996-2010. We get evidence on a significant options market reaction to bank loan announcements in terms of levels and changes in short-term implied volatility and its term structure, and observe significant decreases in short-term implied volatility, and significant increases in the slope of its term structure as a result of loan announcements. Our findings appear to be more pronounced for firms with more information asymmetry, lower credit ratings and loans with longer maturities and higher spreads. Evidence is consistent with loan announcements providing reassurance for investors in the short-term, however, over longer time horizons, the increase in the TSIV slope indicates that investors become increasingly unsure over the potential risks of loan repayment or uses of the proceeds.

Item Type:Article
Divisions:Henley Business School > Business Informatics, Systems and Accounting
ID Code:60081
Publisher:Springer Verlag


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