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Financial media, price discovery, and merger arbitrage

Matthias Buehlmaier and Josef Zechner

No 551, CFS Working Paper Series from Center for Financial Studies (CFS)

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. We also document that financial media information is orthogonal to announcement day returns.

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: 2016
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:551

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