Institutional Trades around Takeover Announcements: Skill Vs. Inside Information
40 Pages Posted: 2 Dec 2009 Last revised: 23 Apr 2011
Date Written: December 1, 2010
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: Suggested Citation