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If you think the game is rigged….
Posted on June 27th, 2014 in General Interest

Investors work hard to find a good trade at the perfect time that will result in a great return.  But most of the time it never seems to happen and if the right deal does come along high frequency trading computers can get in front of the investors trade and raise a stock’s price before they can buy.

This leads many to think that game is rigged and they might be right, according to a study by two NYU professors that studied stock options of companies with recent M&A activity.

Statistically the chance of picking a stock at random that immediately announces merger or acquisition plan is about three in a trillion.  As a comparison, the odds of hitting all 6 numbers in the lotto are about one in 16 million.  In reality picking the perfect stock at the perfect time happens much more often than the statistics forecast.

The study covered over 1,800 M&A deals from January 1996 to December 2012 and found signs of insider trading in roughly 25% of the deals.  The results of the study lead one to believe that the best way to make good investment returns is to either have a fast computer, know executives in large companies or buying those lotto tickets.

Source: http://www.thefiscaltimes.com/Articles/2014/06/20/New-Evidence-Shows-Insider-Trading-Pervasive-and-Rarely-Punished


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