No News is News: Do Markets Underreact to Nothing?
AbstractAs illustrated in the tale of “the dog that did not bark,” the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18914.
Date of creation: Mar 2013
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Find related papers by JEL classification:
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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- NEP-ALL-2013-03-30 (All new papers)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Something happening in reaction to nothing
by Economic Logician in Economic Logic on 2013-04-15 14:55:00
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