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Investor Inattention and the Market Reaction to Merger Announcements

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Author Info

  • Henock Louis

    ()
    (Accounting Department, Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

  • Amy Sun

    ()
    (Accounting Department, Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

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    Abstract

    Prior studies suggest that investors have limited attention. Tests of the inattention hypothesis have been performed in the context of relatively small corporate events, particularly earnings announcements. Presumably, large corporate events would always attract sufficient investor attention. However, we find evidence indicating that inattention affects investors' information processing even in the context of one of the largest and most important corporate events--merger announcements. More specifically, consistent with the notion that investors are less attentive to Friday announcements, we find that the market reaction to Friday stock swap announcements is muted, as evidenced by lower acquirers' merger announcement abnormal trading volumes and less pronounced acquirers' merger announcement abnormal stock returns.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1212
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 56 (2010)
    Issue (Month): 10 (October)
    Pages: 1781-1793

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    Handle: RePEc:inm:ormnsc:v:56:y:2010:i:10:p:1781-1793

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    Related research

    Keywords: investor inattention; merger announcements; market efficiency;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Cited by:
    1. Alasdair Brown, 2013. "Information Acquisition in Ostensibly Efficient Markets," University of East Anglia Applied and Financial Economics Working Paper Series 043, School of Economics, University of East Anglia, Norwich, UK..
    2. Sofía B. Ramos & Helena Veiga & Pedro Latoeiro, 2013. "Predictability of stock market activity using Google search queries," Statistics and Econometrics Working Papers ws130605, Universidad Carlos III, Departamento de Estadística y Econometría.

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