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Is Insider Trading Regulation Effective? Evidence from UK Takeover Activity

Analysed in this study are the returns on stock prices of target companies surrounding the first publicised dates of completed takeovers in the UK between 2001 and 2010. Two samples are created of 209 and 197 firms for announcement and rumoured dates respectively. Both demonstrate statistically significant cumulative abnormal returns (CARs) prior to the release of information about the impending bid. This paper investigates whether observable factors create this price run-up or if it is the result of disclosed insider trading. Cross sectional analysis of CARs do not corroborate the claim that reported informed trades are the cause of this effect, this may indicate that trading on material non public information goes undisclosed.