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

  • Dirk Jenter
  • Katharina Lewellen
  • Jerold B. Warner

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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File URL: http://www.nber.org/papers/w12724.pdf
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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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Publication status: published as Jenter, Dirk, Katharina Lewellen, and Jerold B. Warner. "Security Issue Timing: What Do Managers Know, and When Do They Know It?" Journal of Finance 66, 2(April 2011): 413-43.
Handle: RePEc:nbr:nberwo:12724
Note: CF AP
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  1. Erik Lie, 2001. "Detecting Abnormal Operating Performance: Revisited," Financial Management, Financial Management Association, vol. 30(2), Summer.
  2. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
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  10. Gyoshev, Stanley & Kaplan, Todd R. & Szewczyk, Samuel & Tsetsekos, George, 2012. "Why Do Financial Intermediaries Buy Put Options from Companies?," MPRA Paper 43149, University Library of Munich, Germany.
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