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Anticipation of takeovers in stock and options markets

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  • Liu, Dehong
  • Lung, Pei Peter
  • Lallemand, Justin

Abstract

This paper investigates the information contained in stock and options markets leading up to the public announcement of takeover attempts. The options market demonstrates anticipation of upcoming takeover bids several days before the stock market, as reflected in option-implied stock prices of takeover targets. Moreover, the options-market “lead” over the stock market steadily increases over time as the option market becomes more mature in recent years. These findings suggest that informed investors have migrated from the stock market to the options market.

Suggested Citation

  • Liu, Dehong & Lung, Pei Peter & Lallemand, Justin, 2015. "Anticipation of takeovers in stock and options markets," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 19-35.
    • Handle: RePEc:eee:reveco:v:39:y:2015:i:c:p:19-35
    DOI: 10.1016/j.iref.2015.05.001
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    References listed on IDEAS

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    Cited by:

    1. Patrick Augustin & Menachem Brenner & Marti G. Subrahmanyam, 2019. "Informed Options Trading Prior to Takeover Announcements: Insider Trading?," Management Science, INFORMS, vol. 65(12), pages 5697-5720, December.
    2. Kellner, Tobias, 2024. "The impact of M&A announcements on stock returns in the European Union," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 843-862.
    3. Li, Wei-Xuan & French, Joseph J. & Chen, Clara Chia-Sheng, 2017. "Informed trading in S&P index options? Evidence from the 2008 financial crisis," Journal of Empirical Finance, Elsevier, vol. 42(C), pages 40-65.
    4. Soniya Mohil & Reena Nayyar & Archana Patro, 2020. "When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 1011-1029, June.

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