{"title":"Informed trading prior to financial misconduct: Evidence from option markets","authors":"Keming Li","doi":"10.1016/j.finmar.2023.100855","DOIUrl":null,"url":null,"abstract":"<div><p>This paper shows an abnormal level of option trading activities in the ten days before the revelation of financial misconduct in a sample of the SEC and/or DOJ enforcement actions. These abnormal option trading volumes are negatively associated with the subsequent stock returns to the announcements, and are positively linked to firm penalty, the number of violations, prison sentences, fraud charge, top executives number, potential firm deception toward auditors, impeded investigation, and violation period. Finally, abnormal option trading is related to the time to discovery and the likelihood of discovery. These results suggest that option traders detect firms engaged in financial misconducts.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":"67 ","pages":"Article 100855"},"PeriodicalIF":2.1000,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial Markets","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1386418123000538","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
This paper shows an abnormal level of option trading activities in the ten days before the revelation of financial misconduct in a sample of the SEC and/or DOJ enforcement actions. These abnormal option trading volumes are negatively associated with the subsequent stock returns to the announcements, and are positively linked to firm penalty, the number of violations, prison sentences, fraud charge, top executives number, potential firm deception toward auditors, impeded investigation, and violation period. Finally, abnormal option trading is related to the time to discovery and the likelihood of discovery. These results suggest that option traders detect firms engaged in financial misconducts.
期刊介绍：
The Journal of Financial Markets publishes high quality original research on applied and theoretical issues related to securities trading and pricing. Area of coverage includes the analysis and design of trading mechanisms, optimal order placement strategies, the role of information in securities markets, financial intermediation as it relates to securities investments - for example, the structure of brokerage and mutual fund industries, and analyses of short and long run horizon price behaviour. The journal strives to maintain a balance between theoretical and empirical work, and aims to provide prompt and constructive reviews to paper submitters.
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