Reversal After Voluntary Disclosures
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Mistaking Bad News for Good News: Mispricing of a Voluntary Disclosure
Hyun Jung Rim; Jenny Zha Giedt
- George Washington University
- KRKorea Aerospace Research Institute
- ?Korea Accounting Research Institute (KARI)
- ?George Washington University - School of Business
Strategy in a nutshell
This strategy goes long on size- and value-adjusted peers of NYSE stocks that recently announced Strategic Alternatives (SA) and short on the SA stocks themselves. Positions are held for up to three months and rebalanced quarterly.
Economic rationale
Price reversals after SA announcements occur due to “availability heuristics,” where investors overreact to recent M&A news and mispriced fundamentals. The 3-month holding period captures the peak reversal, optimizing returns while avoiding early positive bias or later diminishing effects.
Backtest performance
Annualised return12.2%
Volatility68.77%
Sharpe ratio0.18