Working Paper: NBER ID: w12724
Authors: Dirk Jenter; Katharina Lewellen; Jerold B. Warner
Abstract: We study put option sales undertaken by corporations during their repurchase programs. Put sales' main theoretical motivation is market timing, providing an excellent framework for studying whether security issues reflect managers' ability to identify mispricing. Our evidence is that these bets reflect timing ability, and are not simply a result of overconfidence. In the 100 days following put option issues, there is roughly a 5% abnormal stock price return, and the abnormal return is concentrated around the first earnings release date following put option sales. Longer term effects are generally not detected. Put sales also appear to reflect successful bets on the direction of stock price volatility.
Keywords: No keywords provided
JEL Codes: G10; G14; G30; G32; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Put option sales (G13) | Subsequent stock returns (G17) |
| Put option sales (G13) | Abnormal returns around first earnings announcement (G14) |
| Put option sales (G13) | Timing ability of managers (C41) |
| Put option sales (G13) | Decline in volatility (E32) |
| Put option sales (G13) | Increase in volatility after program terminations (C41) |