Financial Media, Price Discovery, and Merger Arbitrage

Matthias Bühlmaier, Josef Zechner

Publication: Scientific journalJournal articlepeer-review


Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced.
Original languageEnglish
Pages (from-to)997 - 1046
JournalReview of Finance
Issue number4
Publication statusPublished - 2020

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