The Information Content of ITM-Options for Risk-Neutral Skewness and Informed Trading

This study examines the information role of inter-transaction time by employing a structural market microstructure model. By analyzing the intraday data of the KOSPI200 futures market, we find that the inter-transaction time (i.e., time between two consecu- tive trades) reveals significant information, and that fast trading is indicative of informed trading. This result remains robust when the effect of trade size is incorporated into the model. Our regression analysis indicates that the information role of inter-transaction time becomes more important when informed trading is less concentrated, liquidity is lower, and the market is more volatile.

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Information leakage and informed trading around unscheduled earnings announcements

Corporate Ownership and Control ◽

10.22495/cocv6i2p12 ◽

2008 ◽

Vol 6 (2) ◽

pp. 143-163 ◽

Cited By ~ 1

Author(s):

Campbell Heggen ◽

Gerard Gannon

Keyword(s):

Stock Returns ◽

Information Content ◽

Firm Growth ◽

Earnings Announcements ◽

Abnormal Returns ◽

Information Leakage ◽

Informed Trading ◽

International Standards ◽

Trading Behavior ◽

Trading Volumes

While there has been much judicial discussion regarding the competency of Australia’s continuous disclosure regime with reference to contemporaneous international standards, there has to date been limited empirical analysis of the Australian system’s effectiveness in preventing selective disclosure and information leakage. This paper presents an empirical study of information content and trading behavior around unscheduled earnings announcements – comprising of profit upgrades, profit warnings and neutral trading statements – made by ASX-listed companies during 2004. The contention is that informed trading impacts on the stock returns and trading volumes of listed entities, and hence abnormal returns or trading volumes observed prior to an announcement provide evidence of information leakage. The paper models a range of factors that potentially influence firm disclosure practices and contribute to the level information asymmetry in the market during the pre-announcement period. Previous research has investigated the influence of firm size and information content in contributing to information leakage. This study further considers the variables of firm growth, capital structure and industry group

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Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000551 ◽

2020 ◽

pp. 1-25 ◽

Cited By ~ 2

Author(s):

Tarun Chordia ◽

Tse-Chun Lin ◽

Vincent Xiang

Keyword(s):

Stock Returns ◽

Implied Volatility ◽

Informed Trading ◽

Positive Relation ◽

Cross Sectional ◽

News Releases ◽

Surface Data ◽

Incremental Information ◽

Risk Neutral ◽

Volatility Surface

Abstract In this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announcement returns, and the positive RNS–return relation is more pronounced for other nonscheduled news releases. This suggests that it is informed trading that drives the positive relation between RNS and subsequent stock returns. We also find that RNS contains incremental information beyond trading signals captured by option-implied volatility and volume.

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