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Informed trading around merger and acquisition announcements: Evidence from the UK equity and options markets

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  • Spyros Spyrou
  • Andrianos Tsekrekos
  • Georgia Siougle

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, to different sub‐samples, and to liquidity considerations. 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. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:703–726, 2011

Suggested Citation

  • Spyros Spyrou & Andrianos Tsekrekos & Georgia Siougle, 2011. "Informed trading around merger and acquisition announcements: Evidence from the UK equity and options markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(8), pages 703-726, August.
    • Handle: RePEc:wly:jfutmk:v:31:y:2011:i:8:p:703-726
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    Cited by:

    1. Ordu, Umut & Schweizer, Denis, 2015. "Executive compensation and informed trading in acquiring firms around merger announcements," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 260-280.
    2. Sonali Jain & Sobhesh Kumar Agarwalla & Jayanth R. Varma & Ajay Pandey, 2019. "Informed trading around earnings announcements—Spot, futures, or options?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(5), pages 579-589, May.
    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.
    5. 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.
    6. Jun Zhang, 2019. "Is options trading informed? Evidence from credit rating change announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1085-1106, September.
    7. Liyi Zheng, 2020. "The type of corporate announcements and its implication on trading behaviour," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 629-659, April.
    8. Adra, Samer & Barbopoulos, Leonidas G., 2020. "Do corporations learn from mispricing? Evidence from takeovers and corporate performance," International Review of Financial Analysis, Elsevier, vol. 68(C).

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