Informational Content of Option Volume Prior to Takeovers
Which market attracts informed investors prior to extreme informational events? We examine the information embedded in the stock and option markets prior to takeover announcements. Normally, buyer-seller initiated stock volume imbalances are predictors of next-day stock returns and option volume is uninformative. However, prior to takeover announcements, call-volume imbalances are strongly related to next-day stock returns. Cross-sectional analysis shows that takeover targets with the largest preannouncement call-imbalance increases experience the highest announcement-day returns. These findings suggest that, with pending extreme informational events, the options market plays an important role in price discovery.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:78:y:2005:i:3:p:1073-1072. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.