Institutional Trades around Takeover Announcements: Skill Vs. Inside Information

40 Pages Posted: 2 Dec 2009 Last revised: 23 Apr 2011

See all articles by Narasimhan Jegadeesh

Narasimhan Jegadeesh

Emory University - Department of Finance

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2010

Abstract

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.

Keywords: Institutional investors, Mergers and acquisitions

JEL Classification: G14, G20, G34

Suggested Citation

Jegadeesh, Narasimhan and Tang, Yue, Institutional Trades around Takeover Announcements: Skill Vs. Inside Information (December 1, 2010). Available at SSRN: https://ssrn.com/abstract=1516621 or http://dx.doi.org/10.2139/ssrn.1516621

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-273-4447 (Phone)

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