When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements
Reena Nayyar and
Journal of Futures Markets, 2020, vol. 40, issue 6, 1011-1029
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.
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:40:y:2020:i:6:p:1011-1029
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