Informational content of options trading on acquirer announcement return

Konan Chan, Li Ge, Tse-Chun Lin

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    43 Citations (Scopus)


    This study examines the informational content of options trading on acquirer announcement returns. We show that implied volatility spread predicts positively on the cumulative abnormal return (CAR), and implied volatility skew predicts negatively on the CAR. The predictability is much stronger around actual merger and acquisition (M A) announcement days, as compared with pseudo-event days. The prediction is weaker if pre-M A stock price has incorporated part of the information, but stronger if the acquirer s options trading is more liquid. Finally, we find that a higher relative trading volume of options to stock predicts higher absolute CARs. The relation also exists among the target firms.
    Original languageEnglish
    Pages (from-to)1057 - 1082
    Number of pages26
    JournalJournal of Financial and Quantitative Analysis
    Issue number5
    Publication statusPublished - 2015

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