Informed options trading before FDA drug advisory meetings

Zekun Wu, Paul Borochin and Joseph Golec

Journal of Corporate Finance, 2024, vol. 84, issue C

Abstract: Months before the Food and Drug Administration (FDA) decides to approve or reject a new drug, it often asks committees of drug experts for their recommendations. The experts receive nonpublic technical reports from drug firms and FDA staff. We find significant abnormal options trading before the final reports are created and the committees meet, particularly for small drug firms. These options trades appear to be informed because there are more calls (puts) purchased before approvals (rejections), and a majority have maturities covering the dates when the reports are publicly released. Our results imply that securities regulators should consider monitoring trades early, well before FDA drug approval decisions.

Keywords: FDA; Informed trading; Options (search for similar items in EconPapers)
JEL-codes: G14 I10 I18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:84:y:2024:i:c:s092911992300144x

DOI: 10.1016/j.jcorpfin.2023.102495

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