Security Issue Timing: What Do Managers Know, and When Do They Know It?
Article first published online: 21 MAR 2011
© 2011 the American Finance Association
The Journal of Finance
Volume 66, Issue 2, pages 413–443, April 2011
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
- Issue published online: 21 MAR 2011
- Article first published online: 21 MAR 2011
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.