Informed Trading around Acquisitions: Evidence from Corporate Bonds

40 Pages Posted: 5 Feb 2009 Last revised: 21 Mar 2011

See all articles by Simi Kedia

Simi Kedia

Rutgers Business School

Xing (Alex) Zhou

Board of Governors of the Federal Reserve System

Date Written: February 4, 2009


This paper examines the prevalence of informed trading in the corporate debt market prior to takeover announcements. Unlike target stocks, target bonds do not always gain in an acquisition. Target bonds rated higher than the acquirer’s stand to lose whereas those rated lower stand to gain. We find significant pre-announcement trading activities and price movements in target bonds, in directions consistent with the nature of pending information. Since selling (buying) target bonds that stand to lose (gain) prior to the public announcement requires information about acquirer characteristics, our evidence is less likely to be due to market anticipation, and is consistent with informed trading. We find that improved transparency in the bond markets achieved by the implementation of the TRACE system reduces the incidence of informed trading. Further, there is some weak evidence that bond dealers affiliated with M&A advisors sell in anticipation of negative news on bonds, pointing to a possible channel of information leakage. Such negative news seems to be incorporated into bond prices no slower than into the target stocks.

Keywords: Conflict of Interest, Investment Banking, Mergers and Acquisition, Insider Trading, Corporate Bonds

JEL Classification: G18, G24, G34

Suggested Citation

Kedia, Simi and Zhou, Xing (Alex), Informed Trading around Acquisitions: Evidence from Corporate Bonds (February 4, 2009). Available at SSRN: or

Simi Kedia

Rutgers Business School ( email )

117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)

Xing (Alex) Zhou (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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