Margin trading shareholder activists

ABSTRACT

We examine margin trading activists that we define as shareholders that are identified by Schedule 13D filings and state therein that they may use margin borrowings to finance their holdings. We find that arrivals of margin trading activists are associated with positive target announcement returns compared to those of non-margin trading activists. This indicates that margin trading activists’ arrivals are perceived as signals of positive future target firm performance. Moreover, we find that their investment horizon is likely contingent on how long they have invested in the targets prior to their filings or whether markets react positively to their arrivals.

KEYWORDS:

• Margin trading
• shareholder activist
• hedge fund activism
• schedule 13D

JEL CLASSIFICATION:

• G14
• G23
• G32

Acknowledgment

We thank Philipp Cölsch, Gael Imad’Eddine, Martin Ruckes, Richard Schubert, and Amanjot Singh for their valuable comments.

Declarations of interest

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors other than funds through the ordinary employee contract of the corresponding author at the Karlsruhe Institute of Technology.

Notes

¹ We retrieve the types from the fund’s website, Bloomberg, or S&P Capital IQ, and all firm characteristics and market data from S&P Capital IQ.

² On the contrary, more recent literature shows that retail investors are successful in stock picking (e.g., Boehmer et al. 2020).