If these insiders trade on the private information we

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Unformatted text preview: or an acquisition is known about by an "inner circle" of lawyers and investment bankers and firm managers before the public release of the information. If these insiders trade on the private information, we should see a pattern close to the one illustrated in Figure 8. Prior to the announcement of the merger a price run-up occurs, since insiders have an incentive to take advantage of the private information. Cumulative abnormal return Figure 8: Stock price reaction to news announcement 4 3 2 1 0 -1 -10 -5 0 5 Days relative to announcem ent Although there is ample empirical evidence in support of the efficient market hypotheses, several anomalies have been discovered. These anomalies seem to contradict the efficient market hypothesis. Download free ebooks at bookboon.com 53 Corporate Finance Market efficiency 7.1.4 Classical stock market anomalies January-effect Small poor-performing smallcap stocks have historically tended to go up in January, whereas strong-performing largecaps have tended to rally in December. The difference in performance of smallcap and largecap stock around January has be coined the January-effect....
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.

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