| The exploitation of private information prior to certain public events can lead to substantial excess returns on securities. Previous empirical studies have documented significant stock price run-ups of target firms prior to acquisition announcements. The evidence reveals that these run-ups can be attributed in part to trading by insiders.;Consistent with previous research, we show that more than half of the market reaction occurs prior to the announcement date in the form of a price run-up. We find that net-selling firms experience higher cumulative average abnormal returns than net-buying firms, and that insider trading surrounding acquisition announcements is insignificantly different from insider trading at other times. Consistent with the use of private information, we observe cumulative average abnormal returns twice as large on insider trading days than on days with no insider trading. Finally, our results reveal that insider trading has a significant effect on abnormal returns relatively early over the sixty-day period preceding the acquisition announcement, and that positive abnormal returns are associated with insider net-buying and negative abnormal returns with insider net-selling in eighty percent of the cases.;While insider trading has been extensively researched in the U.S., it has not received much attention in Canada where regulations are less stringent and prosecutions are unusual. With a sample of 128 targets and a comprehensive database of daily insider transactions from 1985 to 1995, we examine pre-bid price run-ups and we investigate the incidence of insider trading before the public announcement of takeovers in Canada. |
