Corporate insider purchases and the options market: Competition among informed investors

Byounghyun Jeon and Johan Sulaeman

Journal of Corporate Finance, 2024, vol. 87, issue C

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.

Keywords: Insider trading; Insider purchases; Options trading; Information competition; Return predictability (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:87:y:2024:i:c:s0929119924000750

DOI: 10.1016/j.jcorpfin.2024.102613

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