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

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Author Info
Dirk Jenter
Katharina Lewellen
Jerold B. Warner

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12724.

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Date of creation: Dec 2006
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Handle: RePEc:nbr:nberwo:12724

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G3 - Financial Economics - - Corporate Finance and Governance
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gustavo Grullon & Roni Michaely, 2004. "The Information Content of Share Repurchase Programs," Journal of Finance, American Finance Association, vol. 59(2), pages 651-680, 04. [Downloadable!] (restricted)
  2. Itzhak Ben-David & John R. Graham & Campbell R. Harvey, 2007. "Managerial Overconfidence and Corporate Policies," NBER Working Papers 13711, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Malcolm Baker & Richard S. Ruback & Jeffrey Wurgler, 2004. "Behavioral Corporate Finance: A Survey," NBER Working Papers 10863, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  5. Lie, Erik, 2005. "Operating performance following open market share repurchase announcements," Journal of Accounting and Economics, Elsevier, vol. 39(3), pages 411-436, September. [Downloadable!] (restricted)
  6. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February. [Downloadable!] (restricted)
  7. Lakonishok, Josef & Lee, Inmoo, 2001. "Are Insider Trades Informative?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 79-111.
  8. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July. [Downloadable!] (restricted)
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  9. Erik Lie, 2001. "Detecting Abnormal Operating Performance: Revisited," Financial Management, Financial Management Association, vol. 30(2), Summer.
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  1. Kyriacou, Kyriacos & Luintel, Kul B & Mase, Bryan, 2008. "Private Information in Executives' Option Trades: Evidence from the UK," Cardiff Economics Working Papers E2008/4, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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