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Insiders, Outsiders, or Trend Chasers?: An Investigation of Pre-takeover Transactions in the Shares of Target Firms

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  • Eyssell, Thomas H
  • Arshadi, Nasser
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    Abstract

    In this study we examine pre-takeover volume run-ups preceding tender offer announcements from 1982 to 1985 and consider three possible explanations for the run-ups: (1) they are due primarily to registered insiders, (2) they are due to market anticipation of the impending event by informed outsiders, and (3) they are due (at least in part) to "positive feedback" investors--i.e., those who observe early price and volume increases and buy to "chase the trend." Our results suggest that preannouncement volume run-ups are largely due to trading by registered insiders. We explain this phenomenon in the context of the relatively lax regulatory environment during the period studied.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 16 (1993)
    Issue (Month): 1 (Spring)
    Pages: 49-59

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    Handle: RePEc:bla:jfnres:v:16:y:1993:i:1:p:49-59

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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    Web page: http://www.southwesternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0270-2592

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    Cited by:
    1. Michael R. King & Maksym Padalko, 2005. "Pre-Bid Run-Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Working Papers 05-3, Bank of Canada.
    2. Del Brio, Esther B. & Miguel, Alberto & Perote, Javier, 2002. "An investigation of insider trading profits in the Spanish stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(1), pages 73-94.
    3. Marcus Clements & Harminder Singh & Antonie Van Eekelen, 2007. "Trading in Target Stocks Before Takeover Announcements: An Analysis of Stock and Option Markets," Accounting, Finance, Financial Planning and Insurance Series 2007_20, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    4. Jabbour, Alain R. & Jalilvand, Abolhassan & Switzer, Jeannette A., 2000. "Pre-bid price run-ups and insider trading activity: Evidence from Canadian acquisitions," International Review of Financial Analysis, Elsevier, vol. 9(1), pages 21-43, February.
    5. Yuan Gao & Derek Oler, 2012. "Rumors and pre-announcement trading: why sell target stocks before acquisition announcements?," Review of Quantitative Finance and Accounting, Springer, vol. 39(4), pages 485-508, November.
    6. Clements, Marcus & Singh, Harminder, 2011. "An analysis of trading in target stocks before successful takeover announcements," Journal of Multinational Financial Management, Elsevier, vol. 21(1), pages 1-17, February.
    7. Ching, Ken M.L. & Firth, Michael & Rui, Oliver M., 2006. "The information content of insider trading around seasoned equity offerings," Pacific-Basin Finance Journal, Elsevier, vol. 14(1), pages 91-117, January.

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