Institutional Trading Around M&A Announcements

Abstract

We contrast the investment strategies of hedge funds and mutual funds around M&A transactions. We find that hedge funds increase their holdings of soon-to-be takeover targets by 7.5% during the quarter before M&A announcements. Conversely, mutual funds reduce their equity holdings in impending targets by 3.0% over the same time period. More actively managed mutual funds decrease their holdings in to-be targets to a significantly lesser extent than their peers. These results, which withstand several robustness tests, suggest that hedge funds enjoy superior access to private information or possess better skills to process public information.

Keywords: M&A, Mutual Funds, Hedge Funds, Performance

JEL Classification: G14, G23, G24, G34