Institutional Trades Around Takeover Announcements: Skill vs. Inside Information
Emory University - Department of Finance
University of Florida - Department of Finance, Insurance and Real Estate
December 1, 2010
AFA 2011 Denver Meetings Paper
This paper examines the pattern and profitability of institutional trades around takeover announcements. We find that the trades of funds as a group, either before or after takeover announcements, are not profitable. However, funds whose main broker is also a target advisor are net buyers of target shares before announcements and their pre-announcement trades are significantly profitable. Therefore, leakage of inside information from brokerages that advise the target is a significant source of funds’ informational advantage. We also find that a subset of funds is skilled at privately gathering information even when they do not trade through target advisors.
Number of Pages in PDF File: 40
Keywords: Institutional Trades, Mergers and Acquisitions, Insider Information
JEL Classification: G14, G23
Date posted: March 11, 2010 ; Last revised: April 23, 2011
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