Institutional Trades around Takeover Announcements : Skill Vs. Inside Information

This paper examines the pattern and profitability of institutional trades around takeover announcements. We find that the trades of funds as a group, either before or after takeover announcements, are not profitable. However, funds whose main broker is also a target advisor are net buyers of target shares before announcements and their pre-announcement trades are significantly profitable. Therefore, leakage of inside information from brokerages that advise the target is a significant source of funds' informational advantage. We also find that a subset of funds is skilled at privately gathering information even when they do not trade through target advisors