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Market Efficiency around the Announcement Day of Self-Tender Offers

Author

Listed:
  • Han-Ching Huang
  • Yong-Chern Su
  • Hsin-Ying Wang

Abstract

We examine the dynamic relationship between self-tender returns, volatility and order imbalances. Since market makers care more about volatilities than inventory risk, they tend to lower the bid-ask spread to mitigate volatility. This result is different from the previous argument whereby market makers tend to raise the bid-ask spread to control inventory risk. A time-varying GARCH model also confirms the results that an order imbalance does not affect volatility during self-tender market convergency. We develop an imbalance-based trading strategy which is to buy (sell) according to whether order imbalances are positive (negative). The empirical findings support self-tender market efficiency.

Suggested Citation

  • Han-Ching Huang & Yong-Chern Su & Hsin-Ying Wang, 2015. "Market Efficiency around the Announcement Day of Self-Tender Offers," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 121-128.
    • Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:1:p:121-128
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Self Tender; Order Imbalance; Information Asymmetry; Volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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