Informed Trading Around Merger and Acquisition Announcements: Evidence from the UK Equity and Options Market
Journal of Futures Markets, Vol. 31, No. 8, pp. 703-726, 2011
36 Pages Posted: 16 Apr 2010 Last revised: 10 Jun 2011
Date Written: January 28, 2010
Abstract
This paper offers new evidence on informed trading around merger and acquisition announcements from the UK equity and options market. The analysis suggests that in about 25%-33% of events there is abnormal option trading volume during the month that precedes the announcement. Such evidence is found in both call and put option volumes, is robust to different ‘estimation’ and ‘event window’ lengths, different sub-samples, and to liquidity considerations. In addition, the findings indicate abnormal pre-event stock returns, mainly for large firms that have equity option contracts traded on their common shares. These results support the argument that informed investors will transact in both the options and the stock market, and are comparable to results reported by the FSA in the cash market.
Keywords: Mergers and Acquisitions, Informed Trading, Options Trading
JEL Classification: G12, G14, G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Information in Option Volume for Stock Prices
By Allen M. Poteshman and Jun Pan
-
The Information of Option Volume for Future Stock Prices
By Allen M. Poteshman and Jun Pan
-
Informational Content of Option Volume Prior to Takeovers
By Charles Cao, John M. Griffin, ...
-
The Informational Role of Stock and Option Volume
By Kalok Chan, Y. Peter Chung, ...
-
Information, Trade, and Derivative Securities
By Michael J. Brennan and H. Henry Cao
-
Deviations from Put-Call Parity and Stock Return Predictability
By Martijn Cremers and David Weinbaum
-
Modeling the Impacts of Market Activity on Bid-Ask Spreads in the Option Market
By Young-hye Cho and Robert F. Engle
-
Who Buys and Sells Options: The Role and Pricing of Options in an Economy with Background Risk
By Gunter Franke, Richard C. Stapleton, ...