Testing the Information-Based Trading Hypothesis in the Option Market: Evidence from Share Repurchases Academic Article

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.

authors

• Kolari, James

published proceedings

• JOURNAL OF RISK AND FINANCIAL MANAGEMENT

altmetric score

• 1

author list (cited authors)

• Badshah, I., Koerniadi, H., & Kolari, J.

citation count

• 1

complete list of authors

• Badshah, Ihsan||Koerniadi, Hardjo||Kolari, James

publication date

• November 2019

publisher

• MDPI  Publisher

published in

• Journal of Risk and Financial Management  Journal

keywords

• Event Study
• Informed Trading
• Options
• Share Repurchase
• Us Equity Market
• Volatility Spread

Digital Object Identifier (DOI)

• 10.3390/jrfm12040179

start page

• 179

end page

• 179

volume

• 12

issue

• 4

URL

• http://dx.doi.org/10.3390/jrfm12040179