Security Issue Timing: What Do Managers Know, and When Do They Know it?
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Dartmouth College - Tuck School of Business
Jerold B. Warner
Simon Graduate School of Business, University of Rochester
NBER Working Paper No. w12724
We study put option sales undertaken by corporations during their repurchase programs. Put sales' main theoretical motivation is market timing, providing an excellent framework for studying whether security issues reflect managers' ability to identify mispricing. Our evidence is that these bets reflect timing ability, and are not simply a result of overconfidence. In the 100 days following put option issues, there is roughly a 5% abnormal stock price return, and the abnormal return is concentrated around the first earnings release date following put option sales. Longer term effects are generally not detected. Put sales also appear to reflect successful bets on the direction of stock price volatility.
Number of Pages in PDF File: 32working papers series
Date posted: December 6, 2006
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