Professor Patrick Augustin wins Best Paper on Empirical Finance

Professor Patrick Augustin wins Best Paper on Empirical Finance at the 2015 Northern Finance Association Annual Meeting for his paper "Informed Options Trading prior to M&A Announcements: Insider Trading?" with co-authors Menachem Brenner and Marti G. Subrahmanyam.

Abstract:
We document pervasive informed trading activity in equity options before M&A announcements, consistent with strategies yielding abnormal returns to informed investors: directional and volatility strategies for target and acquirer firms, respectively. For targets, this is demonstrated by positive abnormal volumes, especially for out-of-the-money and short-dated calls, excess implied volatility, higher bid-ask spreads, and a decrease in the slope of the term structure of implied volatility. For acquirers, abnormal volume arises for at-the-money options and stock-financed deals that have a higher uncertainty of deal completion. SEC litigations involving options trading before M&A announcements show strong similarities between insider trading characteristics and documented patterns of unusual options activity.

Read full article: Social Science Research Network, May 24, 2015

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