Informed Margin Trading: Empirical Evidence from Margin Trading Activists
10 Pages Posted: 8 Mar 2020 Last revised: 16 Apr 2020
Date Written: April 15, 2020
Studies such as Hardouvelis and Theodossiou (2002) indicate that margin traders are not informed investors on average. We examine a subgroup of margin trading investors: Margin trading activists. These are shareholders identified by Schedule 13D filings that state therein to use margin borrowings to finance their holdings. We find that arrivals of margin trading activists are associated with positive target announcement returns compared to arrivals of non-margin trading activists. We also find that ex ante dividend paying targets increase their peer group adjusted dividend yields after margin trading activists’ arrivals. Our findings indicate that margin trading activists are informed.
Keywords: Margin Trading, Activist Investor, Schedule 13D, Dividend Policy
JEL Classification: G23, G32, G34, G35
Suggested Citation: Suggested Citation