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IMPACT OF THE GALLEON CASE ON INFORMED TRADING BEFORE MERGER ANNOUNCEMENTS

Authors


  • We would like to thank the executive editors of the JFR, an anonymous associate editor of the JFR, and Sridhar Sundaram (reviewer).

Abstract

On October 16, 2009, the U.S. government charged Galleon hedge fund founder Raj Rajaratnam and five others with insider trading, in what was described by a key prosecutor overseeing the case as a “wake-up call to Wall Street and to every hedge fund manager.” We find that the mean abnormal stock price runup of targets (a measure of informed trading) during the 26 months since the inception of the Galleon case declined from 5.12% to 2.84%. The early evidence strongly suggests that the Galleon case has sent a clear signal to the traders, and that the traders are listening.

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