Investor Inattention and the Market Reaction to Merger Announcements

Posted: 16 May 2010 Last revised: 8 Apr 2022

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Amy X. Sun

University of Houston

Date Written: May 13, 2010

Abstract

Prior studies suggest that investors have limited attention. Tests of the inattention hypothesis have been performed in the context of relatively small corporate events, particularly earnings announcements. Presumably, large corporate events would always attract sufficient investor attention. However, we find evidence indicating that inattention affects investors’ information processing even in the context of one of the largest and most important corporate events – merger announcements. More specifically, consistent with the notion that investors are less attentive to Friday announcements, the market reaction to Friday stock swap announcements is muted, as evidenced by lower acquirers’ merger announcement abnormal trading volumes and less pronounced acquirers’ merger announcement abnormal stock returns.

Keywords: Investor inattention, Merger, Market efficiency

JEL Classification: G14, G34

Suggested Citation

Louis, Henock and Sun, Amy X., Investor Inattention and the Market Reaction to Merger Announcements (May 13, 2010). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1605862

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Amy X. Sun

University of Houston ( email )

Bauer College of Business
334 Melcher Hall, 390H
Houston, TX 77204
United States
7137435682 (Phone)

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