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Insiders, Outsiders, Or Trend Chasers?: An Investigation Of Pre‐Takeover Transactions In The Shares Of Target Firms

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  • Thomas H. Eyssell
  • Nasser Arshadi

Abstract

In this study we examine pre‐takeover volume run‐ups preceding tender offer announcements from 1982 to 1985 and consider three possible explanations for the run‐ups: (1) they are due primarily to registered insiders, (2) they are due to market anticipation of the impending event by informed outsiders, and (3) they are due (at least in part) to “positive feedback” investors—i.e., those who observe early price and volume increases and buy to “chase the trend.” Our results suggest that pre‐announcement volume run‐ups are largely due to trading by registered insiders. We explain this phenomenon in the context of the relatively lax regulatory environment during the period studied.

Suggested Citation

  • Thomas H. Eyssell & Nasser Arshadi, 1993. "Insiders, Outsiders, Or Trend Chasers?: An Investigation Of Pre‐Takeover Transactions In The Shares Of Target Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(1), pages 49-59, March.
    • Handle: RePEc:bla:jfnres:v:16:y:1993:i:1:p:49-59
    DOI: 10.1111/j.1475-6803.1993.tb00126.x
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    Cited by:

    1. Clements, Marcus & Singh, Harminder, 2011. "An analysis of trading in target stocks before successful takeover announcements," Journal of Multinational Financial Management, Elsevier, vol. 21(1), pages 1-17, February.
    2. Martin Bugeja & Vinay Patel & Terry Walter, 2015. "The microstructure of Australian takeover announcements," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 161-188, February.
    3. Qin Lei & Xuewu Wang, 2014. "Time†Varying Liquidity Trading, Private Information and Insider Trading," European Financial Management, European Financial Management Association, vol. 20(2), pages 321-351, March.
    4. Yuan Gao & Derek Oler, 2012. "Rumors and pre-announcement trading: why sell target stocks before acquisition announcements?," Review of Quantitative Finance and Accounting, Springer, vol. 39(4), pages 485-508, November.
    5. Aktas, Nihat & de Bodt, Eric & Declerck, Fany & Van Oppens, Herve, 2007. "The PIN anomaly around M&A announcements," Journal of Financial Markets, Elsevier, vol. 10(2), pages 169-191, May.
    6. Styliani Panetsidou & Angelos Synapis & Ioannis Tsalavoutas, 2022. "Price run-ups and insider trading laws under different regulatory environments," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 601-639, August.
    7. Park, Jinwoo & Lee, Posang & Park, Yun W., 2014. "Information effect of involuntary delisting and informed trading," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 251-269.
    8. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    9. Ching, Ken M.L. & Firth, Michael & Rui, Oliver M., 2006. "The information content of insider trading around seasoned equity offerings," Pacific-Basin Finance Journal, Elsevier, vol. 14(1), pages 91-117, January.
    10. Del Brio, Esther B. & Miguel, Alberto & Perote, Javier, 2002. "An investigation of insider trading profits in the Spanish stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 73-94.
    11. Jabbour, Alain R. & Jalilvand, Abolhassan & Switzer, Jeannette A., 2000. "Pre-bid price run-ups and insider trading activity: Evidence from Canadian acquisitions," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 21-43, February.
    12. Esther B. Del Brio & Javier Perote & Julio Pindado, 2003. "Measuring the Impact of Corporate Investment Announcements on Share Prices: The Spanish Experience," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(5‐6), pages 715-747, June.

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