What’s hidden behind bulk deals? A study on Indian stock market

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.