Informed Trading in Option Markets around Accelerated Share Repurchase Announcements

46 Pages Posted: 22 Aug 2014 Last revised: 31 Jan 2017

See all articles by Ladshiya Atisoothanan

Ladshiya Atisoothanan

La Trobe University - Faculty of Business, Economics and Law

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Date Written: January 22, 2017

Abstract

We find that the informed trading measures “abnormal O/S ratio”, “abnormal option volume” and “abnormal implied volatility skew” are negatively related to event period abnormal returns for accelerated share repurchases (ASRs) announcements. This effect is stronger for call options and with more liquid options. The abnormal implied volatility spread has information content only for firms with the more liquid options. Further, we show that abnormal returns are positively (negatively) related to the abnormal call (put) volatility surface for options with longer terms to maturity. Overall, our study provides strong evidence of informed trading around ASR announcements.

Keywords: Accelerated share repurchase, options trading, option to shares ratio, option volume, option liquidity, pseudo analysis, implied volatility skew and spread, volatility surface.

JEL Classification: G14, G32

Suggested Citation

Atisoothanan, Ladshiya and Balachandran, Balasingham and Duong, Huu Nhan and Theobald, Michael F., Informed Trading in Option Markets around Accelerated Share Repurchase Announcements (January 22, 2017). 27th Australasian Finance and Banking Conference 2014 Paper; 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017. Available at SSRN: https://ssrn.com/abstract=2484361 or http://dx.doi.org/10.2139/ssrn.2484361

Ladshiya Atisoothanan

La Trobe University - Faculty of Business, Economics and Law ( email )

Victoria 3552, 3086
Australia

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

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

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

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

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

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

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

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