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Informed trading in the options market surrounding data breaches

Author

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  • Piccotti, Louis R.
  • Wang, Heng

Abstract

This study investigated whether there is informed trading that takes advantage of data breach events. By analyzing the transactions in the options market, we conjectured that there are two distinct informed trading patterns: one that begins approximately 4 months prior and another that begins 8–12 months before the corporate data breach announcements. This is supported by evidence of higher trading volume and open interest for put options, a higher put-to-call volume ratio, a higher put-to-call open interest ratio, and lower spreads prior to such announcements. We also examined the stock reactions following data breach announcements and found significantly negative cumulative abnormal returns of −0.35% within one day. Moreover, a cross-sectional analysis showed that put-call ratios have predictive power for stock returns. Finally, additional evidence, such as trading strategies in the stock and options markets, is provided.

Suggested Citation

  • Piccotti, Louis R. & Wang, Heng, 2023. "Informed trading in the options market surrounding data breaches," Global Finance Journal, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:glofin:v:56:y:2023:i:c:s104402832200076x
    DOI: 10.1016/j.gfj.2022.100774
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    Citations

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    Cited by:

    1. Gabriel Arquelau Pimenta Rodrigues & André Luiz Marques Serrano & Guilherme Fay Vergara & Robson de Oliveira Albuquerque & Georges Daniel Amvame Nze, 2024. "Impact, Compliance, and Countermeasures in Relation to Data Breaches in Publicly Traded U.S. Companies," Future Internet, MDPI, vol. 16(6), pages 1-32, June.
    2. Gao, Ya & Bradrania, Reza, 2024. "Property crime and lottery-related anomalies," Global Finance Journal, Elsevier, vol. 59(C).

    More about this item

    Keywords

    Informed trading; Cybersecurity; Data breach; Options market;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K24 - Law and Economics - - Regulation and Business Law - - - Cyber Law

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