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Security Issue Timing: What Do Managers Know, and When Do They Know It?


  • Jenter is at Stanford University and NBER; Lewellen is at Tuck School at Dartmouth; and Warner is at Simon School, University of Rochester. We are grateful to Nittai Bergman, Kenneth French, Christopher Hennessy, Robert McDonald, Jeremy Stein, Ryan Taliaferro (AFA discussant), Ivo Welch (NBER discussant), Campbell Harvey (the Editor), an anonymous referee, and workshop participants at the 2008 AFA Meetings, BYU, Chicago, Columbia, Georgia, LBS, MIT, the 2007 NBER Universities Research Conference, NYU, Rochester, Stanford, UCLA, and USC for helpful comments and suggestions. We would also like to thank David Hadley (Hadley Partners, Inc., formerly of BT Alex Brown), Ajay Khorana (Citigroup), Anil Shivdasani (Citigroup), and David Strasburg (formerly of Goldman Sachs) for valuable industry perspectives.


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.

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