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Informed options trading before FDA drug advisory meetings

Author

Listed:
  • Wu, Zekun
  • Borochin, Paul
  • Golec, Joseph

Abstract

Months before the Food and Drug Administration (FDA) decides to approve or reject a new drug, it often asks committees of drug experts for their recommendations. The experts receive nonpublic technical reports from drug firms and FDA staff. We find significant abnormal options trading before the final reports are created and the committees meet, particularly for small drug firms. These options trades appear to be informed because there are more calls (puts) purchased before approvals (rejections), and a majority have maturities covering the dates when the reports are publicly released. Our results imply that securities regulators should consider monitoring trades early, well before FDA drug approval decisions.

Suggested Citation

  • Wu, Zekun & Borochin, Paul & Golec, Joseph, 2024. "Informed options trading before FDA drug advisory meetings," Journal of Corporate Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:corfin:v:84:y:2024:i:c:s092911992300144x
    DOI: 10.1016/j.jcorpfin.2023.102495
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    More about this item

    Keywords

    FDA; Informed trading; Options;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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