Informed Options Trading Prior to Bankruptcy Filings

47 Pages Posted: 1 Aug 2013 Last revised: 28 Jul 2016

Li Ge

Monash University - Monash Business School

Jianfeng Hu

Singapore Management University - Lee Kong Chian School of Business

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: July 19, 2016

Abstract

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.

Keywords: Bankruptcy, O/S, Informed Options Trading, Insider Trading

JEL Classification: G12, G14, G33

Suggested Citation

Ge, Li and Hu, Jianfeng and Humphery-Jenner, Mark and Lin, Tse-Chun, Informed Options Trading Prior to Bankruptcy Filings (July 19, 2016). 28th Australasian Finance and Banking Conference; Asian Finance Association (AsianFA) 2016 Conference. Available at SSRN: https://ssrn.com/abstract=2302888 or http://dx.doi.org/10.2139/ssrn.2302888

Li Ge

Monash University - Monash Business School ( email )

Building H Level 3, 900 Dandenong Road
Caulfield East
Melbourne, Victoria 3145
Australia
+61 399032123 (Phone)

Jianfeng Hu

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
(+65) 68085477 (Phone)

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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