Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 2003 erstellt
Description:
As microstructure models assume informational asymmetries among investors, the possibility of insider trading is a sound reason for liquidity suppliers to increase the bid-ask spread. In this way, the tested effect that takeover announcements have on target firm returns becomes a strong motive for trading with insider information. In this paper we firstly investigate whether liquidity suppliers value the possibility of trading with informed agents in this sort of event. We analyse the adverse selection cost from bid-ask spread behaviour around takeover announcements. We find that liquidity suppliers enlarge adverse selection cost suggesting that they value the possibility of facing to insiders. Secondly, we study whether market observable variables (trading activity, price and liquidity) have an abnormal behaviour around the announcement. We find statistically positive abnormal changes in trading activity and return for target firms before takeover announcements. Results do not show the existence of significant changes in liquidity. Finally, this last result leads us to explore the relation between trading activity and liquidity. Results show a significant relation of trading activity and the takeover announcement with liquidity