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Informed options trading prior to FDA announcements

Author

Listed:
  • Marc J. M. Bohmann
  • Vinay Patel

Abstract

We find that pre‐announcement implied volatility spreads and options trading activity are abnormally elevated and can predict Food and Drug Administration (FDA) announcement date stock returns. The effect is more pronounced in firms with higher levels of information asymmetry and lower‐quality corporate governance suggesting that some options traders are informed in advance of the details that affect the stock price impact of the FDA news. We provide the first examination of informed options trading prior to FDA announcements during a 21‐year period. Our findings have implications for regulators, investors and relevant firms.

Suggested Citation

  • Marc J. M. Bohmann & Vinay Patel, 2022. "Informed options trading prior to FDA announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1211-1236, July.
    • Handle: RePEc:bla:jbfnac:v:49:y:2022:i:7-8:p:1211-1236
    DOI: 10.1111/jbfa.12600
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    References listed on IDEAS

    as
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