TY - JOUR
T1 - Insider trading, stock return volatility, and the option market's pricing of the information content of insider trading
AU - Chiang, Chin Han
AU - Chung, Sung Gon
AU - Louis, Henock
PY - 2017/3/1
Y1 - 2017/3/1
N2 - We find strong evidence that net insider selling is positively associated with future stock return volatility, consistent with insider selling increasing outside investors’ uncertainty. The positive effect of net insider selling is significantly stronger when the volatility is measured around the earnings announcement. Apparently, option prices do not fully reflect the information content of insider trading for future volatility. More specifically, we find no evidence that option traders adjust the implied volatility for the insider trading effect in a timely manner. Consequently, net insider selling is significantly associated with future option straddle returns and delta neutral returns.
AB - We find strong evidence that net insider selling is positively associated with future stock return volatility, consistent with insider selling increasing outside investors’ uncertainty. The positive effect of net insider selling is significantly stronger when the volatility is measured around the earnings announcement. Apparently, option prices do not fully reflect the information content of insider trading for future volatility. More specifically, we find no evidence that option traders adjust the implied volatility for the insider trading effect in a timely manner. Consequently, net insider selling is significantly associated with future option straddle returns and delta neutral returns.
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U2 - 10.1016/j.jbankfin.2016.11.027
DO - 10.1016/j.jbankfin.2016.11.027
M3 - Article
AN - SCOPUS:85003794072
SN - 0378-4266
VL - 76
SP - 65
EP - 73
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -