Takeover rumors: returns and pricing of rumored targets

Hsin-I Chou; Gloria Y. Tian; Xiangkang Yin

doi:10.1016/j.irfa.2015.05.006

Takeover rumors: returns and pricing of rumored targets

Hsin-I Chou, Gloria Y. Tian, Xiangkang Yin

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Abstract

Rumors can be classified into two types according to whether they can credibly predict impending events. An analysis of takeover rumors of publicly traded US companies shows that the types of rumors are statistically distinguishable by the returns of the rumored targets before the publications of respective rumors. However, market responses to rumors on the day of and the day after the rumor’s publication are statistically indifferent. Trading on takeover rumors can be profitable. Moreover, rumored targets display a different return pattern than other takeover targets, and their takeover premiums cannot be explained by the markup pricing or substitution hypothesis.

Original language	English
Pages (from-to)	13-27
Number of pages	15
Journal	International Review of Financial Analysis
Volume	41
Early online date	20 May 2015
DOIs	https://doi.org/10.1016/j.irfa.2015.05.006
Publication status	Published - 1 Oct 2015

Keywords

Takeover rumor, merger and acquisition, runup, markup, takeover premium

ASJC Scopus subject areas

Finance

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10.1016/j.irfa.2015.05.006

Chou et al 2015 accepted manuscript - FINANA
Published version available via: http://dx.doi.org/10.1016/j.irfa.2015.05.006
Accepted author manuscript, 556 KBLicence: CC BY-NC-ND

Cite this

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title = "Takeover rumors: returns and pricing of rumored targets",

abstract = "Rumors can be classified into two types according to whether they can credibly predict impending events. An analysis of takeover rumors of publicly traded US companies shows that the types of rumors are statistically distinguishable by the returns of the rumored targets before the publications of respective rumors. However, market responses to rumors on the day of and the day after the rumor{\textquoteright}s publication are statistically indifferent. Trading on takeover rumors can be profitable. Moreover, rumored targets display a different return pattern than other takeover targets, and their takeover premiums cannot be explained by the markup pricing or substitution hypothesis.",

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AB - Rumors can be classified into two types according to whether they can credibly predict impending events. An analysis of takeover rumors of publicly traded US companies shows that the types of rumors are statistically distinguishable by the returns of the rumored targets before the publications of respective rumors. However, market responses to rumors on the day of and the day after the rumor’s publication are statistically indifferent. Trading on takeover rumors can be profitable. Moreover, rumored targets display a different return pattern than other takeover targets, and their takeover premiums cannot be explained by the markup pricing or substitution hypothesis.

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Takeover rumors: returns and pricing of rumored targets

Abstract

Keywords

ASJC Scopus subject areas

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