Title

Informed Trading Around Merger Announcements: An Empirical Test Using Transaction Volume And Open Interest In Options Market

Keywords

Acquisitions; Mergers; Open interest; Options; Trading volume

Abstract

This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery. © 2001 Blackwell Publishing Ltd.

Publication Date

1-1-2001

Publication Title

Financial Review

Volume

36

Issue

2

Number of Pages

45-74

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1111/j.1540-6288.2001.tb00010.x

Socpus ID

77957339823 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/77957339823

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