Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/239063 
Year of Publication: 
2019
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 12 [Issue:] 4 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-11
Publisher: 
MDPI, Basel
Abstract: 
The informed options trading hypothesis posits that option prices lead stock prices. In this paper, we extended the research on this hypothesis to open-market share repurchases. Empirical tests showed that the implied volatility spread was not significantly related to buy-and-hold abnormal stock returns. However, further evidence reveal a significant relationship between implied volatility spread and subsequent stock return volatility around open-market share repurchase events. We concluded that option traders have private information on the volatility of stock returns and superior information processing ability that accounts for prescient pricing behavior in options relative to stocks.
Subjects: 
event study
informed trading
options
share repurchase
US equity market
volatility spread
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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