No News is News: Do Markets Underreact to Nothing?

64 Pages Posted: 22 Mar 2013

See all articles by Stefano Giglio

Stefano Giglio

Yale School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Kelly Shue

Yale School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2013

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.

Suggested Citation

Giglio, Stefano and Shue, Kelly, No News is News: Do Markets Underreact to Nothing? (March 2013). NBER Working Paper No. w18914, Available at SSRN: https://ssrn.com/abstract=2237827

Stefano Giglio (Contact Author)

Yale School of Management ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Kelly Shue

Yale School of Management ( email )

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New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

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