How does divergence of opinions affect the relative trading activity and information content in option and stock prior to takeover announcement?

H.C. Huang and P.S. Tung

The Quarterly Review of Economics and Finance, 2016, vol. 60, issue C, 162-171

Abstract: This paper examines whether the options/stock trading volume ratio (O/S) is higher when investors’ opinions are more diverse with respect to the value of acquirer during pre-takeover announcement period and explores how divergence of opinions affects the predictive power of O/S on subsequent stock prices. We find that the coefficients of proxies for diversity of opinion are significantly positive, suggesting that more disagreements tend to have higher volumes of option trading relative to stock. Less predictive powers of O/S on subsequent stock returns are associated with larger divergence of opinion, implying that O/S contains less information about subsequent stock price movements when the divergence of opinions of acquirer firm is higher.

Keywords: Options/stock trading volume ratio (O/S); Divergence of opinions; Takeover (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:60:y:2016:i:c:p:162-171

DOI: 10.1016/j.qref.2015.10.007

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