HCBE Faculty Articles

Title

A Theoretical Model of Directional Volume on Acquirer Stock in Cash Mergers

Document Type

Article

Date

4-2014

Publication Title

Theoretical Economics Letters

ISSN or ISBN

2162-2078

Volume

4

Issue

3

First Page

241

Last Page

246

Description

The acquisition of a target firm in a transaction financed by cash is a cash merger. Announcements of cash mergers release the positive signal that the acquirer possesses cash reserves. As stock prices rise, informed traders may obtain abnormal returns by purchasing call options, selling put options or purchasing stock. This paper constructs a theoretical model in which call buy volume forms the upper bound of the final stock price, put sell volume forms the lower bound of the final stock price and stock purchase volume reveals the final stock price.

DOI

10.4236/tel.2014.43033

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