Informed trading in the options market surrounding data breaches

Louis R. Piccotti and Heng Wang

Global Finance Journal, 2023, vol. 56, issue C

Abstract: This study investigated whether there is informed trading that takes advantage of data breach events. By analyzing the transactions in the options market, we conjectured that there are two distinct informed trading patterns: one that begins approximately 4 months prior and another that begins 8–12 months before the corporate data breach announcements. This is supported by evidence of higher trading volume and open interest for put options, a higher put-to-call volume ratio, a higher put-to-call open interest ratio, and lower spreads prior to such announcements. We also examined the stock reactions following data breach announcements and found significantly negative cumulative abnormal returns of −0.35% within one day. Moreover, a cross-sectional analysis showed that put-call ratios have predictive power for stock returns. Finally, additional evidence, such as trading strategies in the stock and options markets, is provided.

Keywords: Informed trading; Cybersecurity; Data breach; Options market (search for similar items in EconPapers)
JEL-codes: G13 G14 K24 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:56:y:2023:i:c:s104402832200076x

DOI: 10.1016/j.gfj.2022.100774

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