Rumortrage: Can Investors Profit on Takeover Rumors on Internet Stock Message Boards?

46 Pages Posted: 6 Aug 2010 Last revised: 30 Jul 2014

Jenni L. Bettman

Australian National University (ANU)

Aiden G. Hallett

Goldman Sachs Australia Pty Ltd.

Stephen Sault

Australian National University (ANU); Financial Research Network (FIRN)

Date Written: August 5, 2010

Abstract

We provide the first empirical investigation into the impact of Internet Stock Message Board takeover rumors on the price discovery process in the United States equity market. Our investigation involves using an innovative five-stage filtering process, that employs computational linguistics methods, to derive a unique sample of 2,898 first post Message Board takeover rumors disseminated during the period January 2003 to December 2008, inclusive. Overall, our analysis, utilizing intraday Trade and Quote (TAQ) data, reveals that Message Board takeover rumors generate significant positive abnormal returns and trading volumes. Finally, after verifying the robustness of these results to the influence of sample selection bias and an alternative matched control firm abnormal returns metric, we find that Message Board takeover rumors present an economically exploitable opportunity for investors.

Keywords: Internet Stock Message Boards, Price Discovery Process, Takeover, Rumor, Computational Linguistics

JEL Classification: G14

Suggested Citation

Bettman, Jenni L. and Hallett, Aiden G. and Sault, Stephen, Rumortrage: Can Investors Profit on Takeover Rumors on Internet Stock Message Boards? (August 5, 2010). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1654142 or http://dx.doi.org/10.2139/ssrn.1654142

Jenni L. Bettman

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Aiden G. Hallett

Goldman Sachs Australia Pty Ltd. ( email )

Level 48, Governor Philip Tower, 1 Farrer Place
New South Wales
Australia

Stephen Sault (Contact Author)

Australian National University (ANU) ( email )

Canberra ACT 0200, 2601
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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