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Informed Options Trading Prior To Bankruptcy Filings, Li Ge, Jianfeng Hu, Mark Humphery-Jenner, Tse-Chun Lin
Informed Options Trading Prior To Bankruptcy Filings, Li Ge, Jianfeng Hu, Mark Humphery-Jenner, Tse-Chun Lin
Research Collection Lee Kong Chian School Of Business
Prior evidence on pre-bankruptcy-filing informed trade is mixed. The inconclusive findings might result from the sole focus on stock trading. We reassess the presence of pre-filing informed and insider trades by examining the information content of options trading before bankruptcy announcements. We 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.