Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2013-10-03
Number: 13-153/IV/DSF62
Author-Name: Henk Berkman
Author-Workplace-Name: University of Auckland, Australia
Author-Name: Michael McKenzie
Author-Workplace-Name: University of Sydney
Author-Name: Patrick Verwijmeren
Author-Workplace-Name: Erasmus University Rotterdam, Duisenberg School of Finance, The Netherlands; University of Melbourne; University of Glasgow
Title: Hole in the Wall: Informed Short Selling ahead of Private Placements
Abstract: Companies planning a private placement typically gauge the interest of potential buyers before the offering is publicly announced. Regulators are concerned with this practice, called wall-crossing, as it might invite insider trading, especially when the potential investors are hedge funds. We examine privately placed common stock and convertible offerings and find widespread evidence of pre-announcement short selling. We show that pre-announcement short sellers are able to predict announcement day returns. The effects are especially strong when hedge funds are involved and when the number of buyers is high.
Classification-JEL: G32
Keywords: Insider trading, Hedge funds, Private placements, Wall-crossing, Short-selling
File-Url: https://papers.tinbergen.nl/13153.pdf
File-Format: application/pdf
File-Size: 784124 bytes
Handle: RePEc:tin:wpaper:20130153