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When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements
Author(s) -
Mohil Soniya,
Nayyar Reena,
Patro Archana
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22102
Subject(s) - straddle , profit (economics) , trading strategy , business , financial economics , actuarial science , economics , marketing , microeconomics
This study examines the prevalence of informed trading around proximate‐date versus far‐date mergers and acquisitions (M&As). Further, different options strategies pursued by informed traders in proximate‐date M&As are identified. The results highlight that proximate‐date M&As are associated with a significantly higher level of informed trading vis‐à‐vis far‐date M&As. Results on the choice of options strategies highlight that risk‐averse, informed traders may pursue a straddle strategy to profit from their private information, while risk‐seeking, informed traders may use a vertical call spread strategy. Informed traders desirous of hedging their existing positions may employ a protective put strategy.