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.
Bankruptcy, O/S, Informed Options Trading, Insider Trading
Business | Corporate Finance | Finance and Financial Management
Ge, LI; HU, Jianfeng; Humphery-Jenner, Mark; and LIN, Tse-Chun.
Informed options trading prior to bankruptcy filings. (2014). Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/4517