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Financial Media, Price Discovery, and Merger Arbitrage
[Who writes the news? Corporate press releases during merger negotiations]

Author

Listed:
  • Matthias M M Buehlmaier
  • Josef Zechner

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.

Suggested Citation

  • Matthias M M Buehlmaier & Josef Zechner, 2021. "Financial Media, Price Discovery, and Merger Arbitrage [Who writes the news? Corporate press releases during merger negotiations]," Review of Finance, European Finance Association, vol. 25(4), pages 997-1046.
    • Handle: RePEc:oup:revfin:v:25:y:2021:i:4:p:997-1046.
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    File URL: http://hdl.handle.net/10.1093/rof/rfaa037
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    Citations

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    Cited by:

    1. Mentor Lecaj & Granit Curri, 2021. "Advantages Of International Commercial Arbitration In Resolving The Commercial Contests," Perspectives of Law and Public Administration, Societatea de Stiinte Juridice si Administrative (Society of Juridical and Administrative Sciences), vol. 10(2), pages 96-101, June.
    2. Katsafados, Apostolos G. & Leledakis, George N. & Pyrgiotakis, Emmanouil G. & Androutsopoulos, Ion & Fergadiotis, Manos, 2024. "Machine learning in bank merger prediction: A text-based approach," European Journal of Operational Research, Elsevier, vol. 312(2), pages 783-797.
    3. Jia, Zhehao & Li, Donghui & Shi, Yukun & Xing, Lu, 2023. "Firm-level media news, bank loans, and the role of institutional environments," Journal of Corporate Finance, Elsevier, vol. 83(C).
    4. Costa, Evaldo & Rodrigues Teixeira, Ana Carolina & Silva Costa, Suellen Caroline & Consoni, Flavia L., 2022. "Influence of public policies on the diffusion of wind and solar PV sources in Brazil and the possible effects of COVID-19," Renewable and Sustainable Energy Reviews, Elsevier, vol. 162(C).

    More about this item

    Keywords

    Financial media; Merger arbitrage; Hedge funds; Market efficiency; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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