Price run-ups and insider trading laws under different regulatory environments

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We examine target firms’ price run-ups prior to takeovers in two different exchange regulatory environments within the same country. We show that target firms listed both in the secondary market of the UK, known as the Alternative Investment Market (AIM), and in the traditionally regulated Main Market, experience significant abnormal stock returns prior to takeover announcements. These results persist after controlling for market anticipation, indicating signs of information leakage. Contrary to the narrative that secondary markets may be more susceptible to market abusive behaviors, we find that the AIM targets experience significantly lower pre-announcement returns. In addition, we do not find support that the introduction of stricter laws reduces the price run-ups in any of the two markets. In sharp contrast, we find support that the enforcement of insider trading laws, through criminal convictions, reduces the pre-announcement abnormal stock returns but only in the market in which the enforcement focuses.
Original languageEnglish
Pages (from-to)601-639
Number of pages39
JournalReview of Quantitative Finance and Accounting
Issue number2
Early online date15 Apr 2022
Publication statusPublished - Aug 2022

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  • Price run-ups
  • Takeovers
  • Insider trading laws
  • Alternative investment market (AIM)
  • Main market (MM)


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