Informed Trading Around Merger and Acquisition Announcements: Evidence from the UK Equity and Options Market
Journal of Futures Markets, Vol. 31, No. 8, pp. 703-726, 2011
36 Pages Posted: 16 Apr 2010 Last revised: 10 Jun 2011
Date Written: January 28, 2010
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, different sub-samples, and to liquidity considerations. In addition, the findings indicate abnormal pre-event stock returns, mainly for large firms that have equity option contracts traded on their common shares. 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.
Keywords: Mergers and Acquisitions, Informed Trading, Options Trading
JEL Classification: G12, G14, G34
Suggested Citation: Suggested Citation