73 Pages Posted: 1 Sep 2012 Last revised: 11 Sep 2014
Date Written: July 30, 2014
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
Giglio, Stefano and Shue, Kelly, No News Is News: Do Markets Underreact to Nothing? (July 30, 2014). Chicago Booth Research Paper No. 12-41; Fama-Miller Working Paper; Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2139564 or http://dx.doi.org/10.2139/ssrn.2139564
By Andrew Ang