Security Issue Timing: What Do Managers Know, and When Do They Know it?

32 Pages Posted: 6 Dec 2006 Last revised: 9 Feb 2009

See all articles by Dirk Jenter

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR)

Katharina Lewellen

Dartmouth College - Tuck School of Business

Jerold B. Warner

University of Rochester – Simon Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

We study put option sales undertaken by corporations during their repurchase programs. Put sales' main theoretical motivation is market timing, providing an excellent framework for studying whether security issues reflect managers' ability to identify mispricing. Our evidence is that these bets reflect timing ability, and are not simply a result of overconfidence. In the 100 days following put option issues, there is roughly a 5% abnormal stock price return, and the abnormal return is concentrated around the first earnings release date following put option sales. Longer term effects are generally not detected. Put sales also appear to reflect successful bets on the direction of stock price volatility.

Suggested Citation

Jenter, Dirk and Lewellen, Katharina and Warner, Jerold B., Security Issue Timing: What Do Managers Know, and When Do They Know it? (December 2006). NBER Working Paper No. w12724, Available at SSRN: https://ssrn.com/abstract=948186

Dirk Jenter (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katharina Lewellen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Jerold B. Warner

University of Rochester – Simon Business School ( email )

Carol Simon Hall 3-160H
Rochester, NY 14627
United States
585-275-2678 (Phone)
585-442-6323 (Fax)

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