Investor Inattention and the Market Reaction to Merger Announcements

33 Pages Posted: 10 May 2010 Last revised: 12 Nov 2012

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Amy X. Sun

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2010

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.

Keywords: Investor inattention, merger announcement, market efficiency

JEL Classification: G14, G34

Suggested Citation

Louis, Henock and Sun, Amy X., Investor Inattention and the Market Reaction to Merger Announcements (May 10, 2010). Available at SSRN: https://ssrn.com/abstract=1604235 or http://dx.doi.org/10.2139/ssrn.1604235

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Amy X. Sun

University of Houston ( email )

Bauer College of Business
334 Melcher Hall, 390H
Houston, TX 77204
United States
7137435682 (Phone)

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