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Jun Zhang

Journal of Financial Research, 2018, vol. 41, issue 2, 213-236

Abstract: In this article I examine the information content of options trading before auditor change announcements. Preannouncement abnormal implied volatility (IV) skew is negatively and significantly related to cumulative abnormal returns around auditor change announcements. The predictive power of abnormal IV skew is stronger for announcements of negative auditor changes and when the options market is more liquid, and is weaker when information has already been incorporated in the stock market. The results are robust to a placebo test and an alternative measure of informed options trading. Overall results suggest that informed options trading predicts auditor change announcement returns.

Date: 2018
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