Informed trading around biotech M&As

Lawrence Kryzanowski and Trang Phuong Tran

Studies in Economics and Finance, 2018, vol. 35, issue 1, 44-64

Abstract: Purpose - This paper aims to test the extent to which downward bias due to a floating-point exception in probability of informed trading (PIN) estimates obtained using the Easley, Hvidkjaer and O’Hara (EHO; 2002) method is remedied using the Yan and Zhang (YZ; 2012) method. The paper also aims to test the sample-size sensitivity of EHO PIN and identify PIN determinants for acquirers and targets in the biotech sector. Design/methodology/approach - EHO and YZ PIN performances are compared for US biotech acquirers and targets around their mergers and acquisition (M&A) announcements. The sampling method ofKryzanowski and Lazrak (2007)is used to assess sample-size sensitivity of announcement window EHO PIN estimates. Cross-sectional regressions are estimated to identify PIN determinants. Findings - EHO and YZ PIN are not significantly different. EHO PIN exhibits significant sample-size sensitivity. Information leakage prior to M&A announcements is strongly affected by some firm characteristics. Significant determinants of PIN behavior around M&A announcements include insider and institutional holdings and research and development (R&D) expense. Research limitations/implications - Findings imply that PIN partially reflects the activities of insiders and other informed investors about takeover intentions. Subsequent research can examine PIN behavior around pre-announcement rumors for M&As in the same or other industries and for potential targets that are peers of the M&A targets. Originality/value - This paper contributes to the ongoing debate in the empirical finance literature on whether PIN measures informed trading by examining its behavior and the importance of some methodological issues associated with its use in examining market behavior around M&A announcements.

Keywords: Mergers and acquisitions (M&As); Biotech; Intraday; Probability of informed trading (PIN); G14; G34; L65 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-10-2016-0257

DOI: 10.1108/SEF-10-2016-0257

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().