Systematically Shorting Takeover Rumors Provides Abnormal Returns, says Bloomberg study

March 30, 2011

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“Electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010, according to data compiled by Bloomberg. A total of 104, or 14.5 percent, were acquired, the data show. While stocks that were the subject of takeover speculation initially jumped 2.9 percent, betting on declines yielded average profits of 1.2 percent in the next month, an annualized gain of 14 percent. “

“The 14 percent annualized profit from short selling compares with a 6.2 percent yearly return since 1900 before dividends for U.S. stocks, inflation-adjusted data from the London Business School and Credit Suisse Group AG in Zurich show”

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