We examine derivatives trading prior to takeover rumors in a sample of 1,638 publicly traded U.S. firms. The volume of options traded is abnormally high over the 5-day pre-rumor period, primarily due to the number of out-of-the-money call options traded. In addition, the direction of option...

This paper finds that the majority of stock price movements remain unexplained after controlling for both public and private information. This suggests that economists' inability to explain asset price movements is the result of either noise or naive asset pricing models.