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High Frequency Trading, Information, and Takeovers

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  • Humphery-Jenner, M.

    (Tilburg University, Center for Economic Research)

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    Abstract

    This paper (1) proposes new variables to detect informed high-frequency trading (HFT), (2) shows that HFT can help to predict takeover targets, and (3) shows that HFT in uences target announcement announcement returns. Prior literature suggests that informed trade may occur before takeovers, but has not examined the role of HFT and has relied on monthly measures of informed trade (such as PIN or the spread components). I propose microstructure-based variables to detect HFT that are derived from hazard modeling and from VWAP trading algorithms. I show that these can help predict takeover targets and are significantly related to target announcement returns. This highlights the existence of pre-takeover informed trade and the need to control for it when analyzing takeover returns.

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-047.

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    Date of creation: 2011
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    Handle: RePEc:dgr:kubcen:2011047

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    Web page: http://center.uvt.nl

    Related research

    Keywords: High Frequency Trading; Takeovers; Algorithmic Trading;

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    1. Humphery-Jenner, Mark L. & Powell, Ronan G., 2011. "Firm size, takeover profitability, and the effectiveness of the market for corporate control: Does the absence of anti-takeover provisions make a difference?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 418-437, June.
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