Financial Media, Price Discovery, and Merger Arbitrage*

Who writes the news? Corporate press releases during merger negotiations

Matthias M M Buehlmaier and Josef Zechner

Review of Finance, 2021, vol. 25, issue 4, 997-1046

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 (search for similar items in EconPapers)
JEL-codes: G11 G14 G34 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (5)

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