TY - JOUR
T1 - Informed trading around acquisitions
T2 - Evidence from corporate bonds
AU - Kedia, Simi
AU - Zhou, Xing
N1 - Funding Information:
A prior version of this paper was circulated with the title “Insider Trading and Conflicts of Interest: Evidence from Corporate Bonds.” We would like to thank Andriy Bodrunak, Henrik Cronqvist, Mardi Dungey, John Griffin, Jean Helwege, Edith Hotchkiss, Kasper Meisner, Lisa Meulbroek, N.K. Chidambaran, Itzhak Venezia, Dan Weaver, and seminar participants at 2009 WFA meetings at San Diego, Rutgers University, University of Alabama, Tulane University, the Federal Reserve Board, the 2nd Corporate Governance Conference at Drexel, the 5th Swiss National Bank Workshop, the 2009 CFEA conference, and the 2010 China International Conference in Finance for helpful comments. We also thank the Whitcomb Center for financial support.
PY - 2014/3
Y1 - 2014/3
N2 - This paper examines the prevalence of informed trading in corporate bonds prior to takeover announcements. We find significant pre-announcement trading activities and price movements in target bonds, in directions consistent with the nature of pending information. Improved transparency in the bond markets achieved by the implementation of the Trade Reporting and Compliance Engine (TRACE) system reduces the incidence of informed trading. Further, there is some weak evidence that dealers affiliated with merger and acquisition advisors sell in anticipation of negative news, pointing to a possible channel of information leakage. Such negative news seems to be incorporated into bond prices no slower than into the target stocks.
AB - This paper examines the prevalence of informed trading in corporate bonds prior to takeover announcements. We find significant pre-announcement trading activities and price movements in target bonds, in directions consistent with the nature of pending information. Improved transparency in the bond markets achieved by the implementation of the Trade Reporting and Compliance Engine (TRACE) system reduces the incidence of informed trading. Further, there is some weak evidence that dealers affiliated with merger and acquisition advisors sell in anticipation of negative news, pointing to a possible channel of information leakage. Such negative news seems to be incorporated into bond prices no slower than into the target stocks.
KW - Corporate bond market
KW - Informed trading
KW - Merger and acquisition
KW - Transparency
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U2 - 10.1016/j.finmar.2013.07.002
DO - 10.1016/j.finmar.2013.07.002
M3 - Article
AN - SCOPUS:84897672501
SN - 1386-4181
VL - 18
SP - 182
EP - 205
JO - Journal of Financial Markets
JF - Journal of Financial Markets
IS - 1
ER -