No News is News: Do Markets Underreact to Nothing? / Stefano Giglio, Kelly Shue.

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Giglio, Stefano

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18914.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: As illustrated in the tale of "the dog that did not bark," the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.

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Previous	nber w18911 A Theory of the Competitive Saving Motive /	nber w18912 The Market for OTC Derivatives /	nber w18913 The Articulation Effect of Government Policy: Health Insurance Mandates Versus Taxes /	nber w18914 No News is News: Do Markets Underreact to Nothing? /	nber w18915 The Long-term Effects of Early Lead Exposure: Evidence from a case of Environmental Negligence /	nber w18916 Subjective and Objective Indicators of Racial Progress /	nber w18917 Inefficient Hiring in Entry-Level Labor Markets /	Next

March 2013.

As illustrated in the tale of "the dog that did not bark," the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.