Trading responses to negative signals

Author(s)

Mark W. Zikiye, Zikiye Tactic Nutrition
Rebecca Abraham, Nova Southeastern UniversityFollow
Charles Harrington, Nova Southeastern UniversityFollow

ORCID

Rebecca Abraham 0000-0002-3144-7759

Document Type

Article

Publication Title

Theoretical Economics Letters

ISSN

2162-2078

Publication Date

6-2014

Abstract/Excerpt

Mergers may be undertaken by giving shareholders of the target firm the right to exchange their stock for stock in the combined firm. Such stock mergers release the negative signal that the acquiring firm lacks cash. Informed traders seeking immediate gain may short sell acquirer stock or buy puts and sell calls. Liquidity traders, desiring longterm gain, may purchase stock or call options to benefit from lower stock prices, or sell stock or buy put options to maintain liquidity. This paper constructs a theoretical model in which option volume forms the bounds of the final stock price for informed traders while random stock purchase or sale volume establishes the final stock price for liquidity traders.

DOI

https://doi.org/10.4236/tel.2014.46049

Volume

4

Issue

6

First Page

378

Last Page

385

Creative Commons License

This work is licensed under a Creative Commons Attribution-Share Alike 4.0 International License.

NSUWorks Citation

Zikiye, Mark W.; Abraham, Rebecca; and Harrington, Charles, "Trading responses to negative signals" (2014). HCBE Faculty Articles. 805.
https://nsuworks.nova.edu/hcbe_facarticles/805