Pre-Bid Run-Ups and Insider Trading: - Evidence from the Swedish stock market

Abstract: We have studied a data sample of 191 cases of public takeover bids on Swedish listed companies. The goal of this study was to, by firstly studying the price volume dynamics of the target firm, try to determine if a potential price run-up in the target company stock price prior to the announcement was caused by illegal insider trading, or by sophisticated investors carrying out careful analysis of public information. In a second step we also examined the relationship between several factors that potentially could cause an information leakage and the amount of abnormal return generated prior to the announcement, relative to the abnormal return generated upon the announcement. Our main findings are that although we can see a significant price run-up ahead of the announcement date, we cannot find any signs of illegal insider trading, but rather conclude that the observed run-ups are caused by sophisticated investors trading on public information.