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Identifying the Informed Investor in a Takeover Event: An Australian Study of Investor Trading Behaviour

This paper examines the simultaneous trading behaviour for the takeover occasion for eighteen investor classes which constitute the complete trading environment. For the analysis, a buy-sell imbalance (BSI) indicator was employed. Only four domestic investor categories are found however to have actively traded in the target and bidder firms; the fourteen investor classes which did not trade were concluded to be uninformed. The four domestic domiciled investor classes which did actively trade were identified to be domestic domiciled nominees (fund managers), superannuation (pension) funds, incorporated companies, and individuals. For these investors, the behaviour by the superannuation funds and individuals for targets was found to be consistent with an early-informed trader, for the nominees it was consistent with a late-sophisticated trader. The behaviour by the incorporated companies was found to be neither consistent with a sophisticated nor informed investor. A formal test of the investors’ trading behaviour which was a regression analysis supported the inference that the investors’ behaviour was ‘takeover driven’; it was not found to be accounted for by independent variables identified by preceding research as responsible for an investors trading response. To the extent that this study has access to unique data, its contribution lies in identifying the investor class which is sophisticated, unsophisticated, informed or uninformed for the takeover occasion.