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Is options trading informed? Evidence from credit rating change announcements

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  • Jun Zhang

Abstract

Using a sample of proactive credit rating changes, this study examines the information content of options trading before news events. Pre‐event informed options trading predicts cumulative abnormal returns around credit rating change announcements. The predictability of options trading is more pronounced before announcements of more severe and surprising rating changes. Moreover, the information content of pre‐event options trading is greater when the pre‐event underlying stock market is less informational, when the options market is more liquid, and in the post–regulation fair disclosure period. Overall results are consistent with informed options trading before credit rating change announcements.

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  • Jun Zhang, 2019. "Is options trading informed? Evidence from credit rating change announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1085-1106, September.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:9:p:1085-1106
    DOI: 10.1002/fut.22022
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    2. Martin Wallmeier, 2024. "Quality issues of implied volatilities of index and stock options in the OptionMetrics IvyDB database," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(5), pages 854-875, May.

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