Informed Trading in Option Markets around Accelerated Share Repurchase Announcements
46 Pages Posted: 22 Aug 2014 Last revised: 31 Jan 2017
Date Written: January 22, 2017
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: Suggested Citation