No News Is News: Do Markets Underreact to Nothing?

73 Pages Posted: 1 Sep 2012 Last revised: 11 Sep 2014

See all articles by Stefano Giglio

Stefano Giglio

Yale School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Kelly Shue

Yale School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2014

Abstract

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

Giglio, Stefano and Shue, Kelly, No News Is News: Do Markets Underreact to Nothing? (July 30, 2014). Chicago Booth Research Paper No. 12-41; Midwest Finance Association 2013 Annual Meeting Paper; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2139564 or http://dx.doi.org/10.2139/ssrn.2139564

Stefano Giglio (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Kelly Shue

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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