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Security Issue Timing: What Do Managers Know, and When Do They Know It?
Article first published online: 21 MAR 2011
DOI: 10.1111/j.1540-6261.2010.01638.x
© 2011 the American Finance Association
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How to Cite
JENTER, D., LEWELLEN, K. and WARNER, J. B. (2011), Security Issue Timing: What Do Managers Know, and When Do They Know It?. The Journal of Finance, 66: 413–443. doi: 10.1111/j.1540-6261.2010.01638.x
Publication History
- Issue published online: 21 MAR 2011
- Article first published online: 21 MAR 2011
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ABSTRACT
We study put option sales on company stock by large firms. An often-cited motivation for these transactions is market timing, and managers’ decision to issue puts should be sensitive to whether the stock is undervalued. We provide new evidence that large firms successfully time security sales. In the 100 days following put option issues, there is roughly a 5% abnormal stock return, with much of the abnormal return following the first earnings release date after the sale. Direct evidence on put option exercises reinforces these findings: exercise frequencies and payoffs to put holders are abnormally low.