TY  - UNPD
A1  - Augustin, Patrick
A1  - Brenner, Menachem
A1  - Grass, Gunnar
A1  - Subrahmanyam, Marti G.
T1  - How do insiders trade?
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 541
N2  - We characterize how informed investors trade in the options market ahead of corporate news when they receive private, but noisy, information about (i) the timing of the announcement and (ii) its impact on stock prices. Our theoretical framework generates a rich set of predictions about the insiders’ behavior and their maximum expected returns. Three different analyses offer empirical support for our approach. First, predicted trades resemble illegal insider trades documented in SEC litigation cases with insiders being more likely to trade in options that offer higher expected returns. Second, pre-announcement patterns in unusual activity in the options market ahead of significant corporate news are consistent with the predictions of our framework. We employ our approach to characterize informed trading ahead of twelve different types of news including the announcement of earnings, corporate guidance, M&As, product innovations, management changes, and analyst recommendations. Third, to address concerns that pre-announcement patterns are driven by speculation, we show that measures capturing trading activity in call (put) options with high expected returns predict significant positive (negative) corporate news in the aggregate cross-section.
T3  - CFS working paper series - 541 
KW  - Insider Trading
KW  - Market Microstructure
KW  - Corporate Announcements
KW  - Extreme Price Movements
KW  - Equity Options
Y1  - 2016
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/41680
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-416804
UR  - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2848989
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -