Business & Economics
Throughout the past ten years, the United States Environmental Protection Agency (EPA) has issued hundreds of enforcement actions in the electric, natural gas, and petroleum industries. The vast majority of these citations have been violations of environmental statutes, notably the Clean Air Act (CAA) and the Clean Water Act (CWA). My research evaluates the timing of informed investors’ actions pertaining to the public release of these EPA announcements. Since informed traders have much more leverage in the options market, there seems likely to be a concentration of abnormal put option activity shortly before the time in which the announcements reach the public. My sample includes energy companies that were cited by the EPA from 2008 to 2014. In particular, I test whether there is a heightened level of abnormal short-sale and options trading activity prior to these announcements. I find moderate evidence of informed trading in the options market, but no such evidence in the equity market.
Macksoud, Nicholas E., "Trading Ahead of Bad News: Evidence From Short-Sales of Stocks and the Options Market" (2016). Business and Economics Honors Papers. 15.