Financial Media, Price Discovery, and Merger Arbitrage

76 Pages Posted: 26 Oct 2016 Last revised: 25 Feb 2020

See all articles by Matthias M. M. Buehlmaier

Matthias M. M. Buehlmaier

The University of Hong Kong

Josef Zechner

Vienna University of Economics and Business

Date Written: December 26, 2019

Abstract

Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced.

Keywords: Financial Media, Merger Arbitrage, Hedge Funds, Market Efficiency, Mergers and Acquisitions

JEL Classification: G11, G14, G34

Suggested Citation

Buehlmaier, Matthias M. M. and Zechner, Josef, Financial Media, Price Discovery, and Merger Arbitrage (December 26, 2019). CFS WP No. 551. Available at SSRN: https://ssrn.com/abstract=2858999 or http://dx.doi.org/10.2139/ssrn.2858999

Matthias M. M. Buehlmaier

The University of Hong Kong ( email )

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HOME PAGE: http://www.buehlmaier.net/

Josef Zechner (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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