Review of Accounting Studies

, 16:620

Discussion of: The option market’s anticipation of information content in earnings announcements


DOI: 10.1007/s11142-011-9145-8

Cite this article as:
Burks, J.J. Rev Account Stud (2011) 16: 620. doi:10.1007/s11142-011-9145-8


Billings and Jennings (2011) develop a new measure of stock price sensitivity to earnings called anticipated information content (AIC). The main difference between an AIC and an earnings response coefficient (ERC) is that AICs measure expected rather than actual sensitivity. I evaluate the AIC’s potential usefulness in future research, and conclude that AICs have several disadvantages relative to ERCs but might be useful in rare circumstances. Estimates of AICs contain considerable measurement error and fail a primary test of construct validity when left uncorrected. I outline a method for correcting two of the three sources of measurement error, which can be used by researchers interested in pursuing work on AICs. The method may have uses beyond computing AICs because it yields a prediction of the unsigned change in stock price during a scheduled event window.


Stock options Earnings announcements Implied volatility Anticipated information content Return-earnings relation Earnings response coefficients 

JEL Classification

M41 M49 G14 G29 

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Mendoza College of Business 385University of Notre DameNotre DameUSA

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