Informed Trading by Adviser Banks: Evidence from Options Holdings

Forthcoming, Review of Financial Studies

65 Pages Posted: 18 Mar 2015 Last revised: 16 Jun 2018

Date Written: June 5, 2018


Strong conflicts of interest exist within investment banks: the investment banking division possesses substantial private information and the asset management division seeks such information. This raises the question of whether the asset management division benefits from an information advantage on client firms. While prior examinations of advisor bank trading in client firms have focused on stocks and found mixed results, we argue that the options market represents a more attractive venue for such trading. Indeed, we find significant evidence of advisor banks trading in client firm options ahead of merger announcements, but no evidence of similar trading in client firm stock.

Keywords: Conflict of Interest, Merger, Informed Trading, Dodd Frank, Volcker Rule

JEL Classification: G14, G18, G24, G34,

Suggested Citation

Lowry, Michelle B. and Rossi, Marco and Zhu, Zhongyan, Informed Trading by Adviser Banks: Evidence from Options Holdings (June 5, 2018). Forthcoming, Review of Financial Studies, Available at SSRN: or

Michelle B. Lowry (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

Marco Rossi

Texas A&M ( email )

360S Wehner
College Station, TX 77843-4218
United States

Zhongyan Zhu

Monash University ( email )



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