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Full-Text Articles in Finance and Financial Management
Are Corporate Spin-Offs Prone To Insider Trading?, Patrick Augustin, Menachem Brenner, Jianfeng Hu, Marti Subrahmanyam
Are Corporate Spin-Offs Prone To Insider Trading?, Patrick Augustin, Menachem Brenner, Jianfeng Hu, Marti Subrahmanyam
Research Collection Lee Kong Chian School Of Business
Despite abundant empirical evidence of informed trading ahead of major corporate events, no such evidence has been reported in the case of corporate spinoff (SP) announcements. This is surprising, as SP announcements are unexpected, and are also associated with a positive price jump in the parent company’s stock. Using a sample of 280 US announcement events from 1996 to 2013, we document significant pre-announcement informed trading activity in options for about 9 to 16% of events in our sample. In contrast, we find statistically insignificant evidence of informed trading in stocks, suggesting that informed traders employ leverage through options. In …
Option Listing And Information Asymmetry, Jianfeng Hu
Option Listing And Information Asymmetry, Jianfeng Hu
Research Collection Lee Kong Chian School Of Business
Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option listing standards. The benefits are more prominent for stocks with active options trading and opaque stocks. The reduction of information risk is larger for good news than bad news, and the stock price response to earnings surprise weakens after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading.