Investor Inattention and the Market Reaction to Merger Announcements
Pennsylvania State University - Smeal College of Business
Amy X. Sun
Pennsylvania State University - Department of Accounting
May 10, 2010
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.
Number of Pages in PDF File: 33
Keywords: Investor inattention, merger announcement, market efficiency
JEL Classification: G14, G34working papers series
Date posted: May 10, 2010 ; Last revised: November 12, 2012
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