Informed Trading Around Merger Announcements PDF Download
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| Author | : Narayanan Jayaraman |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Informed Trading Around Merger Announcements Book in PDF, ePub and Kindle
This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery.
| Author | : Denis Schweizer |
| Publisher | : |
| Total Pages | : 71 |
| Release | : 2015 |
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| ISBN | : |
Download Executive Compensation and Informed Trading in Acquiring Firms Around Merger Announcements Book in PDF, ePub and Kindle
This paper analyzes informed trading in acquiring firms through (stock) merger announcements. We show that pre-announcement abnormal option volumes in acquiring firms strongly increase ahead of a stock merger (by approximately 300%). Furthermore, we show that the direction of option trades (puts or calls) prior to an announcement can predict post-announcement stock returns. Our results also indicate that higher wealth-to-performance sensitivities of top executives are related to higher abnormal put than call option trading before stock merger announcements. Overall, our results support the view that top executives have a hedging motive. They tend to purchase protection against, e.g., confounding (negative) information policies and/or empire-building mergers with negative NPVs, in order to avoid short-term salary losses (lower bonuses, lower stock options, etc.).
| Author | : Simi Kedia |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2011 |
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| ISBN | : |
Download Informed Trading around Acquisitions Book in PDF, ePub and Kindle
This paper examines the prevalence of informed trading in the corporate debt market prior to takeover announcements. Unlike target stocks, target bonds do not always gain in an acquisition. Target bonds rated higher than the acquirer's stand to lose whereas those rated lower stand to gain. We find significant pre-announcement trading activities and price movements in target bonds, in directions consistent with the nature of pending information. Since selling (buying) target bonds that stand to lose (gain) prior to the public announcement requires information about acquirer characteristics, our evidence is less likely to be due to market anticipation, and is consistent with informed trading. We find that improved transparency in the bond markets achieved by the implementation of the TRACE system reduces the incidence of informed trading. Further, there is some weak evidence that bond dealers affiliated with Mamp;A advisors sell in anticipation of negative news on bonds, pointing to a possible channel of information leakage. Such negative news seems to be incorporated into bond prices no slower than into the target stocks.
| Author | : Xuewu Wesley Wang |
| Publisher | : |
| Total Pages | : 50 |
| Release | : 2008 |
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| ISBN | : |
Download Informed Option Trading around Merger Announcements Book in PDF, ePub and Kindle
This paper examines option trading prior to significant information events. Using a broad sample of merger announcements, I find that there is abnormal option trading prior to such announcements after controlling for merger characteristics. This abnormal option trading is mainly concentrated in short-term and at-the-money options. Trading volume in these options leads stock market order imbalances and strongly contributes to the pre-takeover stock price runup. Implied volatility spread calculated from these options is strongly positively associated with the abnormal option volume. Finally, I also investigate whether option trading volume can be used to predict takeover targets. I find strong predictive power of option volume for takeover targets.
| Author | : Michael J. Brennan |
| Publisher | : |
| Total Pages | : 73 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
Download High-Frequency Measures of Informed Trading and Corporate Announcements Book in PDF, ePub and Kindle
We study informed trading around announcements of merger bids (M&AD) and quarterly earnings (EAD). Extending the EKOP (1996) approach, we compute the daily posterior probabilities of informed trading on good and bad news. We find evidence of informed trading before and after M&AD and EAD. A significant part of the merger bid premium is impounded in stock prices prior to the announcement by informed buying. Post-M&AD informed trading predicts subsequent stock returns and the probabilities that the bid will be withdrawn or met with a competing bid. Pre-EAD informed trading also attenuates the price response to the announcement, and post-EAD informed trading predicts subsequent stock returns.
| Author | : Shane Heitzman |
| Publisher | : |
| Total Pages | : 78 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
Download Informed Trading Reactions to New Private Information Book in PDF, ePub and Kindle
Theory provides competing predictions on the question of whether informed investors immediately trade on newly generated private information. We address this question using SEC-mandated disclosures to identify the dates when new private information about target or acquiring firm value is created. We find that informed investors immediately trade on new private information in both the stock and options markets. Next, we investigate which factors drive the speed of these investors' trading reactions to newly generated private information. We show that cross-sectional variation in the speed of their trading reactions can be explained by the number of privately informed investors, institutional ownership, the expected profits from informed trading and associated risk of attracting the attention of enforcement agencies, and the existence of public information about the acquisition deal.
| Author | : Marco Klapper |
| Publisher | : Anchor Academic Publishing (aap_verlag) |
| Total Pages | : 73 |
| Release | : 2013-10 |
| Genre | : Business & Economics |
| ISBN | : 3954891727 |
Download The Nature of Informed Option Trading: Evidence from the Takeover Market Book in PDF, ePub and Kindle
This study examines the kind of information ‘informed’ traders have prior to a takeover announcement using options of target firms and elaborates on the cross-sectional relationship between options and stocks around takeover announcements. Financial markets are driven by information and by individuals that generate, process, and disclose this information to the market. Naturally, there have to be individuals who possess more information about a firm or a future event than other market participants. Mergers and acquisitions are particularly interesting events in this regard because they can have significant implications for the firms and stakeholders involved, as well as for the competitive dynamics in the respective market. Because of the large potential price impact of such transactions, traders with private information about a prospective takeover are expected to trade on this information to make a profit. But who are these ‘informed traders’ and what kind of information do they possess? This study tries to give a respond to this question.
| Author | : Inga Chira |
| Publisher | : |
| Total Pages | : 41 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
Download Impact of the Galleon Case On Informed Trading Before Merger Announcements Book in PDF, ePub and Kindle
On October 16, 2009, the U.S. government charged Galleon hedge fund founder Raj Rajaratnam and five others with insider trading, in what was described by a key prosecutor overseeing the case as a "wake-up call to Wall Street and to every hedge fund manager." We find that the mean abnormal stock price runup of targets (a measure of informed trading) during the 26 months since the inception of the Galleon case declined from 5.12% to 2.84%. The early evidence strongly suggests that the Galleon case has sent a clear signal to the traders, and that the traders are listening.
| Author | : Guohua Li |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2009 |
| Genre | : |
| ISBN | : |
Download Informed Institutional Trading and News Announcements Book in PDF, ePub and Kindle
This dissertation studies the daily institutional investors trading patterns before and after public news announcements in the US equity market, such as Merger and Acquisition announcement and release of macroeconomic indicators. Do institutional investors have inside information, or do they have superior models before news announcement? Using a high frequency institutional trading dataset that combines intraday NYSE Trades and Quotes (TAQ) data with the quarterly institutional ownership report (13F) by a reduced-form model, this dissertation tests the hypothesis of institutional investors trading on inside information 1993 to 2004. I find that most institutional investors are informed traders who accumulate shares before good news or before takeover announcements as early as 30 days ahead. Institutional investors do not have superior models in that they only buy the actual future targets and sell the forecasted "rumor" stocks from an acquisition probability model. By reversing their positions on and after the announcement day, they realize positive profits. Further, I confirm that the pre-event trading pattern of institutional investors is associated with stocks that have high probability of informed trading.
| Author | : N. Asli Ascioglu |
| Publisher | : |
| Total Pages | : |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
Download Merger Announcements and Trading Book in PDF, ePub and Kindle
We test whether an increase either in informed (hypothesis 1) or in large liquidity trades (hypothesis 2) leads to greater correlation of trading volume across markets. We confirm that both trading volume and positive returns of target companies are abnormally high prior to merger announcements. We find a statistically significant increase in the correlation between NYSE and Nasdaq/regional trading volume preceding merger announcements. Further, after merger announcements, we find evidence of both large liquidity trading and a statistically significant increase in the correlation of trading volume across markets.
