Security Issue Timing: What Do Managers Know, and When Do They Know It?
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.
We are grateful to Nittai Bergman, Christopher Hennessy, Robert McDonald, Jeremy Stein and workshop participants at Columbia University, MIT and the University of Chicago for helpful comments and discussions. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Jenter, Dirk, Katharina Lewellen, and Jerold B. Warner. "Security Issue Timing: What Do Managers Know, and When Do They Know It?" Journal of Finance 66, 2(April 2011): 413-43. citation courtesy of