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How useful are signals? A micro-structure analysis

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Abstract

We analyze how the market processes a signaling event by studying a sample of self-tender offers, events often viewed as signals of firm value. By examining changes in the degree of informed trading, we find asymmetric information costs fall at announcement, remain low throughout the event, and increase at offer expiration. By one month following expiration, informed trading returns to a level not significantly different from that prior to the offer. Higher risk firms have significantly larger declines in information asymmetry during the offer. Increases in information asymmetry persist one month following expiration for firms with lower pre-offer informed trading. (JEL G14, G32)

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Authors and Affiliations

  1. College of Business and Economics, University of Idaho, USA

    Michele O’Neill

  2. Haworth College of Business, Western Michigan University, USA

    Judith Swisher

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  1. Michele O’Neill
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  2. Judith Swisher
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Correspondence to Michele O’Neill.

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O’Neill, M., Swisher, J. How useful are signals? A micro-structure analysis. J Econ Finan 31, 331–340 (2007). https://doi.org/10.1007/BF02885723

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  • DOI: https://doi.org/10.1007/BF02885723

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