hi, Can someone please explain to me why for an under-reaction: - there would be abnormal negative returns following a merger? - abnormal excess returns following a de-merger? Thanks in advance, Min
The market over estimates returns due to a merger, so when things actually pan out, its way below their expectations. i.e. the market underreacted to the negative effects of a merger. No merger is a 100% beneficial. Similarly, it underreacts to the upsides of a de-merger, and doesn't expect enough return. So returns exceed expectations.
