Informed trading around merger and acquisition announcements: Evidence from the UK equity and options markets

Abstract

This paper offers new evidence on informed trading around merger and acquisition announcements from the UK equity and options market. The analysis suggests that in about 25–33% of events there is abnormal option trading volume during the month that precedes the announcement. Such evidence is found in both call and put option volumes, is robust to different “estimation” and “event window” lengths, to different sub‐samples, and to liquidity considerations. These results support the argument that informed investors will transact in both the options and the stock market, and are comparable to results reported by the FSA in the cash market. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:703–726, 2011

Trading Activity in Options and Stock Around Price‐Sensitive News Announcements

“…First, we argue that stock and options volume analysis around informed shocks offers an innovative approach to investigating whether traders prefer to initiate trades in options or stock prior to the arrival of news. Spyrou, Tsekrekos, and Siougle () provide evidence that informed traders are active in the options markets during the month preceding a mergers and acquisition announcement. However, their analysis does not necessarily imply that informed traders prefer to transact in options than stock markets.…”

Informed trading around earnings announcements—Spot, futures, or options?

“…Past studies have documented the behavior of options volume around events like mergers and acquisitions, insider trading, bankruptcy, etc. (for instance, Mazouz, Wu, & Yin, 2015;Spyrou, Tsekrekos, & Siougle, 2011;Wang, Yan, Zhang, & Gao, 2018). This study focuses on option volumes around quarterly EA only.…”

“…(for instance,Mazouz, Wu, & Yin, 2015;Spyrou, Tsekrekos, & Siougle, 2011;Wang, Yan, Zhang, & Gao, 2018). (for instance,Mazouz, Wu, & Yin, 2015;Spyrou, Tsekrekos, & Siougle, 2011;Wang, Yan, Zhang, & Gao, 2018).…”

Executive compensation and informed trading in acquiring firms around merger announcements

“…In addition, evidence suggests that traders who attempt to profit from M&A announcements tend to trade in the options market (see, for example, Cao et al, 2005;Arnold et al, 2006;Clements et al, 2007;Spyrou et al, 2011). Although most authors focus on ''abnormal trading activity'', Cao et al (2005) construct a measure of buyer-and seller-initiated volume prior to takeover announcements, using the former to identify presumably informed orders.…”