Stock Price Movement Around the Merger Announcements: Insider Trading or Market Anticipation?

This paper examines the stock price effects for the possible existence of informed trading prior to merger announcement. The investigation is based on a database of companies for which merger announcement date has been made during 1996-2000 for the firms trading on Bombay stock exchange in India. This study is distinguished from the earlier merger studies as in this study we see the merger in two different forms: industry merger cases & Non-industry merger cases. The results of the study show that some of the information held only by insider works its way into prices. We found strong evidence of insider trading in case of industry mergers, whereas in case of non-industry mergers the data suggested a weaker trading activity based on non-public information.