Browsing by Subject "Insider trading"
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Item The information content of options data applied to the prediction of clinical trial results(2010-12) Yarger, Stephen A., 1974-; Lawson, Kenneth Allen, 1952-; Rascati, Karen; Strassels, Scott; Garlappi, Lorenzo; Leslie, RyanFDA decisions and late-stage clinical trial results regarding new pharmaceutical approvals can cause extreme moves in the share price of small biopharmaceutical companies. Throughout the clinical trial process, many potential investors are exposed to market-moving information before such information is made available to the investing public. An investor who wished to profit from advance knowledge about clinical trial results may use the publicly traded options markets in order to increase leverage and maximize profits. This research examined options data surrounding the public release of information pertaining to the efficacy of clinical trials and approval decisions made by the FDA. Events were identified for small pharmaceutical companies with fewer than three currently approved drugs in an attempt to isolate the effect of individual clinical trial and FDA-related events on the share price of the underlying company. Option data were analyzed using logistic regression models in an attempt to predict phase II and III clinical trial outcome results and FDA new drug approval decisions. Implied volatility, open interest, and option contract delta values were the primary independent variables used to predict positive or negative event outcomes. The dichotomized version of a predictor variable designed to estimate total investment exposure incorporating open interest, option contract delta values, and the underlying stock price was a significant predictor of negative pharmaceutical related events. However, none of ii the variables examined in this research were significant predictors of positive drug research related events. The estimated total investment exposure variable used in this research can be applied to the prediction of future clinical trial and FDA decision related events when this predictor variable shows a negative signal. Additional research would help confirm this finding by increasing the sample size of events that potentially follow the same pattern as those examined in this research.Item Recovering the payoff structure of a utility maximizing agent(2016-05) Goswami, Pulak; Žitković, Gordan; Sirbu, Mihai; Pavlovic, Natasa; Larsen, KasperAny agent with access to information that is not available to the market at large is considered an ‘insider’. It is possible to interpret the effect of this private information as change in the insider’s probability measure. In the case of exponential utility, logarithm of the Radon-Nikodym derivative for the change in measure will appear as a random endowment in the objective the insider would maximize with respect to the original measure. The goal of this paper is to find conditions under which it is possible to recover the structure of this random endowment given only a single trajectory of his/her wealth. To do this, it is assumed that the random endowment is a function of the terminal value of the state variable and that the market is complete.Item Two essays on corporate finance(2010-05) Lian, Jie, 1977-; Parrino, Robert, 1957-; Alti, Aydogan; Fredrickson, James; Hartzell, Jay; Titman, SheridanThis dissertation consists of two essays on corporate finance. Essay one examines whether corporate governance affects firm performance after capital investments. I find that among firms with weak corporate governance, those with high abnormal capital investments have significantly lower stock performance than those with low abnormal capital investments. In addition, a significant portion of the difference in abnormal stock performance between the two subgroups occurs around earnings announcements. In contrast, the level of abnormal capital investments is not related to subsequent stock performance or earnings announcement returns at firms with strong corporate governance. These findings indicate that corporate governance structure enhances firm value by mitigating the over-investment problem. Essay two examines how insider trading activity prior to seasoned equity offerings (SEOs) is related to subsequent investment, operating, and financing decisions of the issuer. I find that SEO firms with more abnormal insider sales issue more seasoned equity, hold more cash and increase dividend payouts more. They also perform more poorly. Following the SEO, these firms also issue less equity and the effects of the SEO on their capital structures gradually reverses. These findings suggest that SEO firms with more abnormal insider sales are more likely to have overpriced stock, while those with less abnormal insider sales are more likely to have good investment opportunities. Insider trading activity prior to the SEO provides valuable information about the firm’s incentives to issue seasoned equity and help to predict the real activities of the issuer following the SEO.