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Merger Announcements and Insider Trading Activity in India: An Empirical Investigation

Investment Management and Financial Innovations, Vol. 3, pp. 140-154, 2006

24 Pages Posted: 9 Jan 2007  

Manish Agarwal

University of South Australia

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Abstract

Insider trading activity is investigated prior to merger announcement in Indian capital market. An attempt is made to check it out whether trading take place on the basis of asymmetric and private information. For examining the behaviour of stock prices a modified market model is used to estimate the parameters for the estimation window. These estimates are used to compute average return and cumulative average returns for the event window, which are measures of abnormal returns. Besides price run-ups, it is also common to see unusually high levels of share trading volume before public announcement of merger. Daily trading volume pattern of the target companies is also investigated. The analysis carried out in this study is based on a sample of 42 companies for which merger announcement date was announced during the period of 1996-1999. Based on the analysis for each company individually, we recommend investigation in six companies for existence of possible insider trading.

Keywords: Merger, Asymmetric and private information, Estimation

JEL Classification: G34, D82, C13

Suggested Citation

Agarwal, Manish and Singh, Harminder, Merger Announcements and Insider Trading Activity in India: An Empirical Investigation. Investment Management and Financial Innovations, Vol. 3, pp. 140-154, 2006. Available at SSRN: https://ssrn.com/abstract=955615

Manish Agarwal

University of South Australia ( email )

Adelaide South Australia, 5000
Australia

Harminder Singh (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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