Informational Content Of Option Volume Prior To Takeovers

This paper examines the information embedded in both the stock and option markets prior to takeover announcements. During normal periods, buyer-seller initiated stock volume imbalances are significant predictors of next-day stock returns and option volume imbalances are uninformative. However, prior to takeover announcements, call volume imbalances are strongly positively related to next-day stock returns. Cross-sectional analysis shows that those takeover targets with the largest pre-announcement call-imbalance increases experience the highest announcement-day returns.

Provided by: University of Texas at Austin (McCombs) Topic: Software Date Added: Sep 2003 Format: PDF

Find By Topic