Corporate Insider Purchases and the Options Market: Competition Among Informed Investors

Authors

Byoung-Hyun Jeon, Marquette UniversityFollow
Johan Sulaeman, National University of Singapore

Document Type

Article

Publication Date

8-2024

Publisher

Elsevier

Source Publication

Journal of Corporate Finance

Source ISSN

0929-1199

Original Item ID

DOI: 10.1016/j.jcorpfin.2024.102613

Abstract

Corporate insiders have superior access to information; their trades, particularly purchases, should be informative. However, the extent of their informational advantage may be limited by the presence of other informed market participants. We document less frequent insider purchases in stocks with relatively high options trading activity. These purchases are followed by negligible abnormal returns. In contrast, stocks with less active options trading experience more frequent insider purchases, which yield positive abnormal returns over the subsequent six months. Our novel approach highlights the options market's role in screening uninformed insider trades, which ultimately contributes to more efficient stock market price formation.

Comments

Journal of Corporate Finance, Vol. 87 (August 2024). DOI.

Recommended Citation

Jeon, Byoung-Hyun and Sulaeman, Johan, "Corporate Insider Purchases and the Options Market: Competition Among Informed Investors" (2024). Finance Faculty Research and Publications. 168.
https://epublications.marquette.edu/fin_fac/168