Rumors of Mergers and Acquisitions: Market Efficiency and Markup Pricing

48 Pages Posted: 25 Aug 2010 Last revised: 2 Mar 2011

See all articles by Hsin-I Chou

Hsin-I Chou

RMIT University; University of Otago - Department of Accountancy and Finance

Gloria Yuan Tian

University of Lethbridge Calgary Campus; Financial Research Network (FIRN)

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 23, 2010

Abstract

Rumors can be classified into two types, according to whether they can credibly predict impending events or not. The analysis of takeover rumors of publically traded US companies from 1990 to 2008 shows that these two types of rumors can be statistically distinguished by returns of rumored takeover targets before rumor publication. However, market responses to the rumors on the rumor day and the day after are statistically indifferent. Trading on such rumors can be profitable. Moreover, takeover premiums of sampled targets cannot be explained by markup pricing hypothesis although the hypothesis is supported by the view of efficient markets.

Keywords: Financial rumor, merger and acquisition, markets efficiency, runup, markup, takeover premium

JEL Classification: G14, G34

Suggested Citation

Chou, Hsin-I and Tian, Gloria Yuan and Yin, Xiangkang, Rumors of Mergers and Acquisitions: Market Efficiency and Markup Pricing (August 23, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper; Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1663513 or http://dx.doi.org/10.2139/ssrn.1663513

Hsin-I Chou

RMIT University ( email )

Australia

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Gloria Yuan Tian

University of Lethbridge Calgary Campus ( email )

6th floor, 345 - 6 Ave SE
Calgary, Alberta T2G 4V1
Canada

Financial Research Network (FIRN)

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

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

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
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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