Sung Gon Chung has two papers accepted for publication
Assistant Professor of Accounting Sung Gon Chung recently had two papers accepted for publication in top journals.
The first paper is titled "Insider trading, stock return volatility, and the option market's pricing of the information content of insider trading" and was written with Chin-Han Chiang and Henock Louis. This paper was accepted by the Journal of Banking and Finance.
We find strong evidence that net insider selling is positively associated with future stock return volatility, consistent with insider selling increasing outside investors’ uncertainty. The positive effect of net insider selling is significantly stronger when the volatility is measured around the earnings announcement. Apparently, option prices do not fully reflect the information content of insider trading for future volatility. More specifically, we find no evidence that option traders adjust the implied volatility for the insider trading effect in a timely manner. Consequently, net insider selling is significantly associated with future option straddle returns and delta neutral returns.
The second paper is titled “Voluntary fair value disclosures beyond SFAS 157’s three-level estimates” and was written by Sung Gon Chung, Beng Wee Goh, Jeffrey Ng, and Kevin Ow Yong. This paper was accepted by the Review of Accounting Studies.
Some firms voluntarily make disclosures about the controls and processes in place to ensure the reliability of fair value estimates. Consistent with these disclosures being driven by investors’ concerns about the reliability of their SFAS 157 estimates, we find that firms with more opaque estimates are more likely to provide such disclosures. We then examine whether these disclosures improve investors’ perception about the reliability of fair value estimates. We find that they are associated with higher market pricing and lower information risk for Level 3 estimates. Further analyses of the disclosures reveal that the following types of information are particularly important to investors: discussion of the external and independent pricing of fair value estimates and their proper classification according to the SFAS 157 hierarchy. Overall, our results suggest that the voluntary reliability disclosures that firms provide beyond SFAS 157’s three-level estimates help reduce investors’ uncertainty toward the more opaque fair value estimates.