Post by congregatio on Nov 21, 2017 8:16:24 GMT 4
Pre-Trade Hedging
42 Pages Posted: 10 Nov 2017
Brian J. Henderson
George Washington University - Department of Finance
Neil D. Pearson
University of Illinois at Urbana-Champaign - Department of Finance
Li Wang
Case Western Reserve University
Multiple version iconThere are 2 versions of this paper
Date Written: November 10, 2017
Abstract
Pre-trade hedging can alter the prices at which derivative trades occur. We document that it impacts prices, and exploit variation in the design of structured equity products (SEPs) to show that the impacts are intentional. We find positive abnormal returns on the pricing dates of SEPs for which the issuer benefits from altering the closing stock price, but none on the pricing dates of otherwise similar SEPs that do not provide the same incentive. We also show that large buy trades near the close of trading are more frequent when SEPs issuers have an incentive to alter closing stock prices.
papers.ssrn.com/sol3/papers.cfm?abstract_id=3068903
42 Pages Posted: 10 Nov 2017
Brian J. Henderson
George Washington University - Department of Finance
Neil D. Pearson
University of Illinois at Urbana-Champaign - Department of Finance
Li Wang
Case Western Reserve University
Multiple version iconThere are 2 versions of this paper
Date Written: November 10, 2017
Abstract
Pre-trade hedging can alter the prices at which derivative trades occur. We document that it impacts prices, and exploit variation in the design of structured equity products (SEPs) to show that the impacts are intentional. We find positive abnormal returns on the pricing dates of SEPs for which the issuer benefits from altering the closing stock price, but none on the pricing dates of otherwise similar SEPs that do not provide the same incentive. We also show that large buy trades near the close of trading are more frequent when SEPs issuers have an incentive to alter closing stock prices.
papers.ssrn.com/sol3/papers.cfm?abstract_id=3068903