The Impact of Option Expiration and the Timing of Earnings Announcements on Stock Returns and Trading Volume

Due to the regulations in the financial markets and the trading rules of securities, there are periodic events taken place at certain points of time. This dissertation seeks to study the impact of these events on the variables of financial markets, such as stock trading volume and returns.;The first part investigates the implications of equity option expiration on stock trading volume. On average, the turnover ratio of common stocks on the expiration date is 443% larger than other Fridays. By testing three hypotheses, peak in trading volume on the third Friday is only observed in optionable stocks with expiring options. Stocks traded before the existence of exchange-traded options, non-optionable stocks, and stocks without expiring options experience no increases in trading volume on the third Friday of a month. Hence, there is strong evidence that the increase in trading volume on the third Friday of each month is caused by option expiration.;The second chapter further documents striking evidence that stocks with a sufficiently large amount of deeply in-the-money call options earn significantly lower returns on option expiration dates, with a drop in average daily returns of up to 1 percentage point. This price movement of stocks is followed by a short-term reversal. On option expiration dates, option holders who exercise deeply in-the-money call options have an increasing demand for immediacy to sell the acquired stocks in the stock market. I offer an explanation of why this is not offset by option writers' purchases, based on the premise that most written calls are covered either at inception or prior to maturity. When exercised open interest is sufficiently large compared to the daily trading volume of the underlying stocks, the resulting selling pressure in the stock market leads to a fall in expiration-date returns of the underlying stocks.;The last part studies the lead-lag relation of firms' quarterly earnings announcements and its impact on returns of the announcing stocks. By arranging thirty Dow Jones Industrial Average stocks in order of their earnings announcements, stocks announcing in the first half of the announcing period tend to earn positive returns, while stocks announcing in the second half perform poorly. There are significant positive returns by taking the long position on stocks announcing in the first half and shorting stocks in the second half of the earnings season. The early positive return drift can be explained by the earnings announcement premium documented by Lamont and Frazzini (2007), while the second-part negative returns may be driven by investors overreaction to pre-earning good news.