Rarely seen, unusual levels of activity could suggest insider trading.
Six years after the attacks on the World Trade Centre, this is the disturbing conclusion of a recent study by Marc Chesney and Loriano Manchini, both professors at the University of Zurich.
The authors – one a derivatives specialist, the other an expert in econometrics – have worked on options, used to speculate on a fall in share price of the 20 major American companies, notably in the aeronautical industry and in the financial sector.
Their research compares transactions made between the 6 and the 10th of September 2001 with average recorded volumes over a long period (a decade for most companies).
The two researchers have, in addition, calculated the probability that several options in the same sector were subject to significant trading within several days.
“We tried to see if the recorded transactions of certain shares just before the attacks were typical. But we show that for certain companies such as American Airlines, United Airlines, Merrill Lynch, Bank of America, Citigroup, Marsh & McLehnan, such transactions are statistically extremely rare, especially when compared to the volume of transactions observed for other companies such as Coca-Cola or Hewlett-Packard” explains Marc Chesney, former professor at HEC and the author of “Money laundering and the financing of terrorism” (published by Ellipses).
“For instance, 1,535 sales option contracts with a maturity date of October 2001, at a price of 30 dollars, had been traded for American Airlines on the 10th September, compared to a daily average of about 24 contracts over the previous three weeks. The fact that the market was in decline at the time is not sufficient to explain these surprising volumes.”
The authors also studied the returns for sales-options for an investor having bought options between the 6th and the 10th September.They state:
“For certain shares, the gains were enormous. For example, for investors having bought sales options in Citigroup with a maturity date of October 2001 could have gained more than 15 million dollars”
By comparing the data of trading volumes to that of returns, the authors conclude that “the probability of insider trading is high for American Airlines, United Airlines, Merrill Lynch, Bank of America, Citigroup et JP Morgan. This is not legal proof but the result of statistical research which demonstrates signs of irregularity.”
While it is true that this research is not the first report on the possibility of insider-trading linked to the attacks, it is disturbing news for the regulating bodies. Since September 2001, the SEC and other similar authorities, have taken an interest in unusual share trading before the attacks.
Article translated from French
The original author was Marina Alcaraz
Source: Les Echos