A&F Research Community Seminar – Alvart Balmanian

Title: Investor Sentiment and Options Trading Volume around M&A Announcements

Date: 12 April 2023

Time: 13:00 – 14:00

Location NUBS 2.13

Speaker:  Alvart Balmanian, PGR student, NUBS

Abstract: This study examines the role of investor sentiment in options market trading activity prior to
M&A announcements. Using an extensive sample of U.S. M&A deals, we find that sentiment
has a significant and positive impact on the options-to-stock volume ratio. This result shows
that an increase in options trading prior to M&A announcements coincides with higher
sentiment. The findings of this study extend those of previous research which report that
abnormal pre-announcement options trading activity is purely driven by rational motives
such as informed trading, by showing that pre-announcement options volume is also
partially driven by irrational motives such as investor sentiment. The results are observed
universally across subsets of options and not driven by options with specific moneyness or
maturity, firms with specific size and industry characteristics, or confined to the period of a
global financial crisis. The results also indicate that sentiment is a key factor in determining
the market’s reaction to M&A announcements.