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Is there information leakage prior to share repurchase announcements? Evidence from daily options trading

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  • Hao, (Grace) Qing

Abstract

This study is the first examination of daily stock options trading prior to corporate share repurchase announcements. Using a sample of over 2,000 share repurchase announcements in the United States during the 1996–2012 period, I find that the average volatility spreads become abnormally high immediately prior to repurchase announcements. Furthermore, the pre-announcement abnormal volatility spreads are positively associated with the repurchase announcement return. The results are robust to different regression specifications and randomization tests. Taken together, my findings suggest that some options market participants are informed about the upcoming repurchase announcements, facilitated by information leakage.

Suggested Citation

  • Hao, (Grace) Qing, 2016. "Is there information leakage prior to share repurchase announcements? Evidence from daily options trading," Journal of Financial Markets, Elsevier, vol. 27(C), pages 79-101.
  • Handle: RePEc:eee:finmar:v:27:y:2016:i:c:p:79-101
    DOI: 10.1016/j.finmar.2015.11.003
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    References listed on IDEAS

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    Cited by:

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    2. Doojin Ryu & Heejin Yang, 2018. "The directional information content of options volumes," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(12), pages 1533-1548, December.
    3. Sun, Hanwen & Yin, Shuxing, 2017. "Information leakage in family firms: Evidence from short selling around insider sales," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 72-87.
    4. Wang, Yang & Ashton, John K. & Jaafar, Aziz, 2019. "Money shouts! How effective are punishments for accounting fraud?," The British Accounting Review, Elsevier, vol. 51(5).
    5. Kelley Bergsma & Andy Fodor & Vijay Singal & Jitendra Tayal, 2020. "Option trading after the opening bell and intraday stock return predictability," Financial Management, Financial Management Association International, vol. 49(3), pages 769-804, September.
    6. Patel, Vinay & Putniņš, Tālis J. & Michayluk, David & Foley, Sean, 2020. "Price discovery in stock and options markets," Journal of Financial Markets, Elsevier, vol. 47(C).
    7. Ihsan Badshah & Hardjo Koerniadi & James Kolari, 2019. "Testing the Information-Based Trading Hypothesis in the Option Market: Evidence from Share Repurchases," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(4), pages 1-11, November.
    8. Scott Fung & Robert Loveland, 2020. "When do informed traders acquire and trade on informational advantage? Evidence from Federal Reserve stress tests," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1459-1485, October.
    9. Jun Zhang, 2019. "Is options trading informed? Evidence from credit rating change announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1085-1106, September.
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    12. Bohmann, Marc & Michayluk, David & Patel, Vinay & Walsh, Kathleen, 2019. "Liquidity and earnings in event studies: Does data granularity matter?," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 118-131.

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    More about this item

    Keywords

    Options market; Share repurchase; Volatility spread; Information leakage;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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