What’s hidden behind bulk deals? A study on Indian stock market
ISSN: 0307-4358
Article publication date: 25 January 2022
Issue publication date: 9 March 2022
Abstract
Purpose
Emerging market, like India, is characterised by poor institutional structure, weaker regulations and higher information asymmetry which may lead to stock price manipulation. This study shed some light on such manipulation by investigating front-running behaviour around the bulk deals of stocks traded at the National Stock Exchange (NSE) from 2010 to 2019.
Design/methodology/approach
The authors employ an event study methodology to identify front-running in pre-event period of bulk deals. The bulk deals are classified into Only Buy, Only Sell, Partial Buy and Partial Sell trades. They are further subsampled based on the category of investors. Through cross-sectional regression, the authors also identify factors explaining such front-running.
Findings
The results show that the front-runners can achieve 5%–7% returns within a week around the event day. Abnormal Returns (AR) before the deals are higher for “Buy” deals than “Sell” deals. The authors also examine the role of volume and delivery in explaining the AR and cumulative abnormal returns (CAR). Lagged CAR, change in volume and change in delivery explain the AR. The results are robust after controlling for Bullish and Bearish Periods.
Originality/value
To the best of authors’ knowledge, this is the first study that explores the front-running in “Partial Buy” and “Partial Sell” bulk deals. Further, it investigates whether the category of investors has any role in front running. It empirically tests the asymmetric market reaction between “Buy” and “Sell” trades. Finally, it examines the role of volume and delivery in front-running.
Keywords
Acknowledgements
The authors thank Prof. Vikas Agarwal, Bank of America Distinguished Chair and Professor of Finance, J Mack Robinson College of Business, Georgia State University (US), for their valuable feedback during their visit to IIM Calcutta as an academic visitor. The authors thank the financial research and trading lab of IIM Calcutta for data support. Prof. Vivek Rajvanshi acknowledges the research grant received under the category-I project from IIM Calcutta (IBTPDEM/3737/2017-18).
Citation
Rajvanshi, V. and Paul, S. (2022), "What’s hidden behind bulk deals? A study on Indian stock market", Managerial Finance, Vol. 48 No. 4, pp. 557-576. https://doi.org/10.1108/MF-08-2021-0374
Publisher
:Emerald Publishing Limited
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