The Information Content of Insider Call Options Trading

20 Pages Posted: 13 Oct 2005

See all articles by Robert Chen

Robert Chen

University of Toronto - Rotman School of Management

Xinlei Shelly Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division

Abstract

We examine the information content of two forms of insider trading, insider buy-, and sell-call transactions. We find that the information carried by stand-alone call purchases has only a shortterm impact on stock prices, but over a longer term, call purchases accompanied by stock purchases have a positive impact. Call purchases accompanied by stock sales signal negative information about the firm, suggesting that some insiders use complicated trading strategies to manipulate the market. Insider sell-call transactions are followed by negative returns, indicating these transactions are driven by negative information about the firm.

Suggested Citation

Chen, Robert and Zhao, Xinlei, The Information Content of Insider Call Options Trading. Financial Management, Vol. 34, No. 2, Summer 2005. Available at SSRN: https://ssrn.com/abstract=814087

Robert Chen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Xinlei Zhao (Contact Author)

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division ( email )

250 E Street, SW
Washington, DC 20219
United States

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