Topic: Informed Trading in the Stock Market and Option Price Discovery

Speaker: Vyacheslav Fos, Associate Professor of Finance (with tenure), Boston College, Carroll School of Management

Date: July 6 (Friday)

Time: 10:00-11:30am

Location: Building 1, Room 100

Language: English

Abstract:

When activist shareholders _le Schedule 13D _lings, the average excess return on target stocks is 6% and stock price volatility drops by about 10%. Prior to _ling days, volatility (price) information is reected in option (stock) prices. Using a comprehensive sample of trades by Schedule 13D _lers, which reveals on what days and in what markets they trade, we show that on days when activists accumulate shares, option implied volatility decreases, volatility skew increases, and option bid-ask spreads widen. The evidence is consistent with informed trading in the stock market contributing to the flow of volatility information into option prices.

About the speaker:

Professor Fos’s research interests are in the areas of financial markets, corporate governance, and corporate finance. His research studies information transmission in financial markets, insider trading, boards of directors, the role of activist shareholders in corporate governance, the role of stock liquidity in corporate governance, and investment and employment consequences of share repurchases. His research has appeared in leading academic journals, including the Econometrica, Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and Management Science. Professor Fos’s teaching interests focus on corporate finance. He has taught courses in corporate finance at the undergraduate and graduate levels.