Merger Announcements and Trading

Abstract

We test whether an increase either in informed trades or in large liquidity trades leads to greater correlation of trading volume across markets. We confirm that both trading volume and positive returns of target companies are abnormally high before merger announcements. We find a statistically significant increase in the correlation between New York Stock Exchange and Nasdaq/regional trading volume before merger announcements. Furthermore, after merger announcements, we find evidence of both large liquidity trading and a statistically significant increase in the correlation of trading volume across markets. Southern Finance Association and the Southwestern Finance Association.

Information-based trading, price impact of trades, and trade autocorrelation

“…5 In a similar spirit, Chowdhry and Nanda (1991) hold that when trades can be executed on multiple markets, informed traders hide their information by dispersing their trades across different markets, which causes a positive correlation in the volume across exchanges. Consistent with this prediction, Ascioglu et al (2002) find a statistically significant increase in the correlation between NYSE and NASDAQ/ regional trading volume preceding merger announcements.…”

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

“…Chakravarty, Gulen, & Mayhew (2004) argue that investors with private information may view the options market as an ideal venue for their informed trading and that price discovery may take place in the options markets. In addition, Jayaraman, Frye, & Sabherwal (2001) examine 33 merger and acquisition (M&A) announcements for US firms and find that prior to the rumour of a deal there is significant increase in the trading activity of both call and put options contracts for the firms involved; Ascioglu, McInish, & Wood (2002) find abnormally high positive stock returns and trading volume for US target companies before merger announcement.…”

The Fundamental Determinants of Trading Volume Reaction to Financial Information: Evidence and Implications for Empirical Capital Market Research

“…2 2 New information includes, for example, earnings announcements and events such as merger announcements (Ascioglu, McInish, and Wood 2002). …”