Informed options trading prior to bankruptcy filings

• Main Authors: Ge, LI, HU, Jianfeng, Humphery-Jenner, Mark, LIN, Tse-Chun
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Bankruptcy; O/S; Informed Options Trading; Insider Trading; Business; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4517; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5516/viewcontent/Informedoptions.pdf
• Institution: Singapore Management University

Prior evidence on pre-bankruptcy-filing informed trade is mixed. The inconclusive findings might result from the sole focus on stock trading. We reassess the presence of pre-filing informed and insider trades by examining the information content of options trading before bankruptcy announcements. We find that bankruptcy filing returns are not significantly related to pre-filing insider stock trading. However, filing returns are significantly negatively related to pre-filing insider and informed options trading. The informational content of options trading reduces with options illiquidity and the amount of information impounded into pre-filing stock prices.