No News Is News: Do Markets Underreact to Nothing?
73 Pages Posted: 1 Sep 2012 Last revised: 11 Sep 2014
There are 2 versions of this paper
No News Is News: Do Markets Underreact to Nothing?
No News is News: Do Markets Underreact to Nothing?
Date Written: July 30, 2014
Abstract
As 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.
Keywords: limited attention, no news, underreaction, merger arbitrage, hazard rates
JEL Classification: G02, G14, G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Limited Attention, Information Disclosure, and Financial Reporting
-
Investor Psychology in Capital Markets: Evidence and Policy Implications
By Kent D. Daniel, David A. Hirshleifer, ...
-
Market Frictions, Price Delay, and the Cross-Section of Expected Returns
By Kewei Hou and Tobias J. Moskowitz
-
Do Investors Overvalue Firms with Bloated Balance Sheets?
By David A. Hirshleifer, Kewei Hou, ...
-
Why Do New Issues and High-Accrual Firms Underperform: The Role of Analysts' Credulity
By Siew Hong Teoh and T.j. Wong
-
Driven to Distraction: Extraneous Events and Underreaction to Earnings News
By David A. Hirshleifer, Sonya S. Lim, ...
-
Industry Information Diffusion and the Lead-Lag Effect in Stock Returns
By Kewei Hou
-
Learning with Information Capacity Constraints
By Lin Peng