Before market moving deals are made, information often seeps out, to the benefit of a few individuals, finds a new study by researchers from McGill and New York University.
The study, titled Informed options trading prior to M&A announcements: insider trading? Found “pervasive direction options activity” that the researchers say is consistent with inside information being leaked.
Their research indicates that a quarter of mergers and acquisitions could have been the subject of insider trading. They looked at deals between 1996 and 2012. They also calculate the odds of their study being wrong to be three in a trillion.
The study also documents the Securities and Exchange Commission’s tendency to pursue insider-trading cases when the acquiring company is large, headquartered outside the U.S., has benefitted substantially from the transaction. Further, the SEC looked into 4.7% of the nearly 2,000 transactions the study examined.
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