| The purposes of this study were to examine whether (a) the market exhibits asymmetrically distributed information in the form of trading behavior of professional investors simultaneous with merger announcement signals, and (b) price and trading volume relationships are consistent with the presumptions of asymmetrically distributed information. The problem addressed in this study is the lack of quantitative evidence regarding asymmetric information among investors, a situation which leads to increasing trading volumes and simultaneous changes in stock prices. The event study approach research design was used along with the cumulative abnormal average method of aggregating returns to conduct this analysis. The analysis was carried out using the average volume in a normal day as a benchmark. Averaged volume was calculated from (t minus 252 to t minus 31 trading days) prior to the announcement date. The researcher calculated an average abnormal volume for each trading day using a sample standard deviation for each trading day (i.e. t-30, t-29, 0, t+29, t+30). Findings indicated that merger announcement brought about temporary increases in abnormal trading volume 1 day before (-1 and 0), the announcement date, and 2 days after the merger announcements (+1 and +2). From a social change perspective, the insight provided by this research can help finance practitioners improve corporate responsibility, broaden insight on transparency and disclosure of companies' books, enforcement of Security and Exchange rules and regulations, and create shareholder activism through minority shareholder watchdog groups, oversight committees and strengthening shareholders right. The implications for social changes is that violators of insider trading rules should face prosecution from the Security and Exchange Commissions, because insider trading undermines investors confidence in the fairness and integrity of securities markets. |
