Informed Option Trading Around Merger Announcements PDF Download
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| Author | : Xuewu Wesley Wang |
| Publisher | : |
| Total Pages | : 50 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download Informed Option Trading around Merger Announcements Book in PDF, ePub and Kindle
This paper examines option trading prior to significant information events. Using a broad sample of merger announcements, I find that there is abnormal option trading prior to such announcements after controlling for merger characteristics. This abnormal option trading is mainly concentrated in short-term and at-the-money options. Trading volume in these options leads stock market order imbalances and strongly contributes to the pre-takeover stock price runup. Implied volatility spread calculated from these options is strongly positively associated with the abnormal option volume. Finally, I also investigate whether option trading volume can be used to predict takeover targets. I find strong predictive power of option volume for takeover targets.
| Author | : Narayanan Jayaraman |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Informed Trading Around Merger Announcements Book in PDF, ePub and Kindle
This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery.
| Author | : Marco Klapper |
| Publisher | : Anchor Academic Publishing (aap_verlag) |
| Total Pages | : 70 |
| Release | : 2014-02-01 |
| Genre | : Business & Economics |
| ISBN | : 3954896729 |
Download The nature of informed option trading: Evidence from the takeover market Book in PDF, ePub and Kindle
This study examines the kind of information ‘informed’ traders have prior to a takeover announcement using options of target firms and elaborates on the cross-sectional relationship between options and stocks around takeover announcements. Financial markets are driven by information and by individuals that generate, process, and disclose this information to the market. Naturally, there have to be individuals who possess more information about a firm or a future event than other market participants. Mergers and acquisitions are particularly interesting events in this regard because they can have significant implications for the firms and stakeholders involved, as well as for the competitive dynamics in the respective market. Because of the large potential price impact of such transactions, traders with private information about a prospective takeover are expected to trade on this information to make a profit. But who are these ‘informed traders’ and what kind of information do they possess? This study tries to give a respond to this question.
| Author | : Denis Schweizer |
| Publisher | : |
| Total Pages | : 71 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Executive Compensation and Informed Trading in Acquiring Firms Around Merger Announcements Book in PDF, ePub and Kindle
This paper analyzes informed trading in acquiring firms through (stock) merger announcements. We show that pre-announcement abnormal option volumes in acquiring firms strongly increase ahead of a stock merger (by approximately 300%). Furthermore, we show that the direction of option trades (puts or calls) prior to an announcement can predict post-announcement stock returns. Our results also indicate that higher wealth-to-performance sensitivities of top executives are related to higher abnormal put than call option trading before stock merger announcements. Overall, our results support the view that top executives have a hedging motive. They tend to purchase protection against, e.g., confounding (negative) information policies and/or empire-building mergers with negative NPVs, in order to avoid short-term salary losses (lower bonuses, lower stock options, etc.).
| Author | : Patrick Augustin |
| Publisher | : |
| Total Pages | : 80 |
| Release | : 2014 |
| Genre | : Consolidation and merger of corporations |
| ISBN | : |
Download Informed Options Trading Prior to M & A Announcements Book in PDF, ePub and Kindle
"There is often a tip. Before many big mergers and acquisitions, word leaks out to select investors who seek to covertly trade on the information. Stocks and options move in unusual ways that aren't immediately clear. Then news of the deals crosses the ticker, surprising everyone except for those already in the know. Sometimes the investor is found out and is prosecuted, sometimes not. That's what everyone suspects, though until now the evidence has been largely anecdotal. Now, a groundbreaking new study finally puts what we've instinctively thought into hard numbers -- and the truth is worse than we imagined. A quarter of all public company deals may involve some kind of insider trading, according to the study by two professors at the Stern School of Business at New York University and one professor from McGill University. The study, perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012. The professors examined stock option movements -- when an investor buys an option to acquire a stock in the future at a set price -- as a way of determining whether unusual activity took place in the 30 days before a deal's announcement. The results are persuasive and disturbing, suggesting that law enforcement is woefully behind -- or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines. The professors are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading 'arising out of chance' were 'about three in a trillion.' (It's easier, in other words, to hit the lottery.) But, the professors conclude, the Securities and Exchange Commission litigated only 'about 4.7 percent of the 1,859 M. & A. deals included in our sample.'"--Andrew Ross Sorkin, NY Times, June 16, 2014.
| Author | : Li Ge |
| Publisher | : Open Dissertation Press |
| Total Pages | : |
| Release | : 2017-01-27 |
| Genre | : |
| ISBN | : 9781361379738 |
Download Informational Content of Options Trading on Equity Returns and Corporate Events Book in PDF, ePub and Kindle
This dissertation, "Informational Content of Options Trading on Equity Returns and Corporate Events" by Li, Ge, 葛麗, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: This dissertation consists of three empirical studies about the informational content of options trading on subsequent equity returns and around major corporate events, such as mergers and acquisitions, and bankruptcies. The first chapter examines the informational content of options trading on acquirer announcement returns. I show that implied volatility spread predicts positively on the cumulative abnormal return (CAR), and implied volatility skew predicts negatively on the CAR. The predictability is much stronger around actual merger and acquisition (M&A) announcement days, compared with pseudo-event days. The prediction is weaker if pre-M&A stock price has incorporated part of the information, but stronger if acquirer's options trading is more liquid. Finally, I find that higher relative trading volume of options to stock predicts higher absolute CARs. The relation also exists among the target firms. In the second chapter, I reassess the presence of pre- bankruptcy-filing informed and insider trades by examining the information content of options trading before bankruptcy announcements. I find that bankruptcy filing returns are not significantly related to pre-filing insider stock trading. However, filing returns are significantly negatively related to pre-filing insider and informed options trading. The informational content of options trading reduces with options illiquidity and the amount of information impounded into pre-filing stock prices. In the third chapter, I use data on signed option volume to study which components of option volume predict returns and resolve the apparent inconsistency in the literature. I find no evidence that trades related to synthetic short positions in the underlying stocks contain more information than trades related to synthetic long positions. Purchases of calls that open new positions are the strongest predictor of returns, followed by call sales that close out existing purchased call positions. The signed O/S measures also predict announcement returns for both earnings announcements and unscheduled corporate events. Overall the results indicate that the role of options in providing embedded leverage is the most important channel why options trading predict stock returns. Subjects: Options (Finance)
| Author | : Daniel Bradley |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 2009 |
| Genre | : |
| ISBN | : |
Download Do Insiders Practice What They Preach? Informed Option Exercises Around Acquisitions Book in PDF, ePub and Kindle
We examine executive stock option exercise activity around a sample of acquisition announcements between 1996 and 2006, particularly focusing on a subset of exercises that we identify as potentially informed. For stock-financed acquisitions, we find a surge in informed exercises by acquirers' insiders in the year leading up to the acquisition announcement and significantly more option exercises when matched to control firms. On the other hand, target insiders display no increase in informed option exercises in the year preceding the merger announcement and significantly less ESO exercises compared to their matched firms. We find the market reaction upon the announcement for acquirers is negatively related to extreme early exercises and the dollar amount of such informed exercises. Firms with informed exercises underperform control-matched firms both from an operating and stock performance perspective. Overall, our evidence indicates that insiders knowingly bid for firms when they personally believe their own firm is overvalued, consistent with the theoretical predictions in Shleifer and Vishny (2003).
| Author | : Edward Podolski |
| Publisher | : |
| Total Pages | : 38 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Informed Options Trading Prior to Takeovers - Does the Regulatory Environment Matter? Book in PDF, ePub and Kindle
We investigate the prevalence of informed options trading prior to takeover announcements, when the legal prohibition against insider trading is strictest. Although insider trading laws apply equally to the options and stock markets, the options market is considerably more transparent than the equity market, which makes insider trading in options more easily detectable. We find that privately informed investors trade in the options market prior to takeover announcements; however, their transactions are limited to liquid call options and options with high inherent leverage. Furthermore, we find that prior to takeover announcements, informed investors trade on their private information in the options market only when a SEC investigation of insider trading is unlikely to occur. Our results suggest that even prior to takeover announcements informed investors are attracted to the options market, which increases profit making potential due the greater leverage it affords, although they trade in a way which minimizes the likelihood of detection.
| Author | : Patrick Augustin |
| Publisher | : |
| Total Pages | : 34 |
| Release | : 2020 |
| Genre | : |
| ISBN | : |
Download Informed Options Trading Before Corporate Events Book in PDF, ePub and Kindle
There is sufficient evidence in the popular, legal, and financial literature that informed options trading ahead of scheduled and unexpected corporate events is pervasive. In this review, we piece together the extant evidence on this topic into a cohesive picture, which includes abnormal activity ahead of announcements of earnings, mergers and acquisitions, as well as numerous other corporate events. We also discuss the more limited evidence on informed trading in other derivatives markets, such as credit default swaps (CDSs). In addition, we characterize the impact and features of illegal insider trading, and insider trading networks. We also provide a brief overview of the legal framework in the U.S. concerning legal and illegal insider trading, in order to emphasize the challenges associated with identifying informed options trading. We end with our suggestions regarding future research opportunities in this broad topic.
| Author | : Harvey Cheong |
| Publisher | : |
| Total Pages | : 73 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
Download Toeing the Informed Trading Line Book in PDF, ePub and Kindle
This paper investigates how personal connections facilitate informed option trading prior to corporate events. We identify person-to-person connections between hedge funds and companies before merger and acquisitions announcements and find that fund managers' pre-announcement option holdings predict the direction and size of the acquirers' stock return. This return predictability is more pronounced when connections form through funds' senior officials, Ivy League networks, and MBA programs, thus highlighting the importance of fund managers' ability to access and process private information for informed trading. For regulators, our results identify a channel for material private information dissemination between network participants.
