Do Social Networks Facilitate Informed Option Trading? Evidence from Alumni Reunion Networks

Journal of Financial and Quantitative Analysis (Forthcoming)

74 Pages Posted: 2 Mar 2021 Last revised: 6 Mar 2021

See all articles by Harvey Cheong

Harvey Cheong

Energy Market Authority

Joon Ho Kim

University of Hawaii at Manoa

Florian Münkel

Saint Mary's University, Sobey School of Business

Harold D. Spilker III

University Of Hawaii At Manoa, Shidler College of Business

Date Written: February 27, 2021

Abstract

Material private information transmits through social networks. Using manually collected information on networks of alumni reunion cohorts, we show that hedge fund managers connected to directors of firms engaged in merger deals increase call option holdings on target firms before deal announcements. Effects are larger when reunion events for connected cohorts occur just before announcements. Independent directors, directors with short tenure, and directors with low stock ownership are more likely to transmit information. Our results are robust to confounding factors and alternative specifications. These findings highlight the role of social networks as channels of private information dissemination.

Keywords: Informed Trading, Social Networks, Hedge Funds, Mergers & Acquisitions, Options

JEL Classification: D82, G11, G12, G14, G34, L14, Z13

Suggested Citation

Cheong, Harvey and Kim, Joon Ho and Münkel, Florian and Spilker III, Harold D., Do Social Networks Facilitate Informed Option Trading? Evidence from Alumni Reunion Networks (February 27, 2021). Journal of Financial and Quantitative Analysis (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3795685

Harvey Cheong

Energy Market Authority ( email )

991G Alexandra Road #01-29
Singapore, 119975
Singapore

Joon Ho Kim

University of Hawaii at Manoa ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Florian Münkel

Saint Mary's University, Sobey School of Business ( email )

923 Robie St.
Halifax, Nova Scotia B3H 3C3
Canada

Harold D. Spilker III (Contact Author)

University Of Hawaii At Manoa, Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States
8089568738 (Phone)

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