Market Efficiency around the Announcement Day of Self-Tender Offers

Han-Ching Huang, Yong-Chern Su and Hsin-Ying Wang

The International Journal of Business and Finance Research, 2015, vol. 9, issue 1, 121-128

Abstract: We examine the dynamic relationship between self-tender returns, volatility and order imbalances. Since market makers care more about volatilities than inventory risk, they tend to lower the bid-ask spread to mitigate volatility. This result is different from the previous argument whereby market makers tend to raise the bid-ask spread to control inventory risk. A time-varying GARCH model also confirms the results that an order imbalance does not affect volatility during self-tender market convergency. We develop an imbalance-based trading strategy which is to buy (sell) according to whether order imbalances are positive (negative). The empirical findings support self-tender market efficiency.

Keywords: Self Tender; Order Imbalance; Information Asymmetry; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:9:y:2015:i:1:p:121-128

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