The occurrence of insider trading in target shares of JSE listed companies prior to takeover announcements

Research into whether insider trading exists in the shares traded on theJohannesburg Stock Exchange (JSE). The purpose of the research is toexamine the share price in target companies and to determine whether or not itincreases significantly during the days immediately preceding a takeover, delistingor share buy-back announcement. Out of a total of 5,039 merger and acquisition transactions, during the six- yearperiod from 2000 to 2005, only 30 transactions met the criteria of informationavailability and non-occurrence of confounding events. The Average CumulativeAbnormal Returns (CAAR) of target companies during a 21-day event windowperiod were examined. The examination of the CAAR was based on thehistorical bootstrapping technique and the CAAR was plotted on the frequencydistribution to test for significance. The CAAR of the sample tested to be statistically significant in the days prior tothe first public announcement. Evidence of a share price build-up in the daysprior to the first public announcement was found. Controlling for confoundingevents, this price build-up could be indicative of insider trading. This research study seems to be the first study focused on insider trading andpre-announcement price run-ups on the Johannesburg Stock Exchange. Copyright © 2007 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria Please cite as follows: Van der Plas, F 2007, The occurrence of insider trading in target shares of JSE listed companies prior to takeover announcements, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03272010-174047/ > G10/225/ag