Financial media, price discovery, and merger arbitrage

Arbeitspapier

Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper Series ; No. 551

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Information and Market Efficiency; Event Studies; Insider Trading ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
• Subject: financial media ; merger arbitrage ; hedge funds ; market efficiency ; mergers and acquisitions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buehlmaier, Matthias M. M. ; Zechner, Josef
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/147148
• URN: urn:nbn:de:hebis:30:3-418707
• Last update: 10.03.2025, 11:42 AM CET