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Informed Options Trading Before Auditor Change Announcements

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  • Jun Zhang

Abstract

In this article I examine the information content of options trading before auditor change announcements. Preannouncement abnormal implied volatility (IV) skew is negatively and significantly related to cumulative abnormal returns around auditor change announcements. The predictive power of abnormal IV skew is stronger for announcements of negative auditor changes and when the options market is more liquid, and is weaker when information has already been incorporated in the stock market. The results are robust to a placebo test and an alternative measure of informed options trading. Overall results suggest that informed options trading predicts auditor change announcement returns.

Suggested Citation

  • Jun Zhang, 2018. "Informed Options Trading Before Auditor Change Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 41(2), pages 213-236, June.
    • Handle: RePEc:bla:jfnres:v:41:y:2018:i:2:p:213-236
    DOI: 10.1111/jfir.12147
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    Cited by:

    1. George D. Cashman & David M. Harrison & Hainan Sheng, 2022. "Short selling and options trading: A tale of two markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 313-338, June.
    2. Michael Shafer & Edward Szado, 2020. "Environmental, social, and governance practices and perceived tail risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 4195-4224, December.

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