The Journal of finance the first expiration date. For oversubscribed offers(at the first expiration date) the profit from the trading strategy is Py(F/FT)+ PE(1-Fp/FT)-PB where Pe is the price after the expiration day In order to allow for transaction costs, no trading was undertaken in cases where Pg>0.97 Pr. An investor who buys shares and tenders does not incur transaction costs on the repurchase shares. Therefore, the transaction costs of this strategy are less than the costs of a round-trip transaction To test the sensitivity of the results to the timing of purchases and sales different trading rules were examined. The first trading rule assumes buying and ay and, if the offer is ascribed, selling the nonrepurchased shares two days after the expiration day. In the second trading rule, the purchase is made on the day before the expiration and the nonrepur chased shares are sold two days after the expiration. Finally, the third trading rule assumes that we buy on the day before the expiration day and sell four days after the expiration. In each case, results are provided for the total period and the two subperiods Note that the trading rule assumes that we can actually sell the shares two days after the expiration date. In general, a day after the offer expires, the company announces the outcome of the offer. If the offer is oversubscribed and the company decides not to buy all the shares, a preliminary pro-rata decision is announced. The preliminary pro-rata number is always very close to the final pro-rata allocation, which is announced within ten business days. However, an investor does not have to wait until the final pro-rata decision is made before lling the remaining shares Under the usual settlement procedure, an investor who buys shares will officially become the owner of the stock after five business days. Hence, buyin and tendering one day before the expiration day is not feasible. However, by following a cash-settlement procedure, it is possible to obtain title to the shares on the same day. Discussions with brokers revealed that cash settlement implies larger transaction costs for relatively small trades (i.e, a small investor cannot use discount brokers). Thus, we also tested the trading strategy by assuming that the stock was purchased six business days before the expiration day and the nonrepurchased shares are sold twelve business days after the expiration day The long post-expiration period reflects the fact that the exact pro-rata decision is known within twelve business days. B. Results The results of the trading strategy are shown in Table Il. The abnormal returns presented are adjusted for the market movement based on the CRSP equally 10 Shares are, in general, kept in the depository under the age name and transferred to the the receipt of payment for the acquin tendered, the brokerage house makes a commitment to ha ndered shares available, Because the preliminary pro-rata decision is very close to the final allocation, the nonrepurchased shares are released by the brokerage house after the preliminary announcement