High Frequency Trading, Information, and Takeovers

49 Pages Posted: 14 May 2011 Last revised: 18 Jan 2012

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Date Written: April 3, 2011

Abstract

This paper (1) proposes new variables to detect informed high-frequency trading (HFT), (2) shows that HFT can help to predict takeover targets, and (3) shows that HFT influences target announcement returns. Prior literature suggests that informed trade may occur before takeovers, but has not examined the role of HFT and has relied on monthly measures of informed trade (such as PIN or the spread components). I propose microstructure-based variables to detect HFT that are derived from hazard modeling and from VWAP trading algorithms. I show that these can help predict takeover targets and are significantly related to target announcement returns. This highlights the existence of pre-takeover informed trade and the need to control for it when analyzing takeover returns.

Keywords: High Frequency Trading, Takeovers, Algorithmic Trading

JEL Classification: G12, G14, G18, G34, K22

Suggested Citation

Humphery-Jenner, Mark, High Frequency Trading, Information, and Takeovers (April 3, 2011). European Banking Center Discussion Paper No. 2011-011; 2012 Financial Markets & Corporate Governance Conference; 24th Australasian Finance and Banking Conference 2011 Paper; CentER Discussion Paper Series No. 2011-047. Available at SSRN: https://ssrn.com/abstract=1825223 or http://dx.doi.org/10.2139/ssrn.1825223

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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