Can Investors Profit From Friday's Rumors?
Wall Street's Friday was a big day for rumors that moved the market and a slow day for news.
A partial sampling of Friday's unconfirmed rumors of varying plausibility: RS Corp. (NYSE: URS) hired investment bankers, Sharp wants to buy smartphone equipment from Apple Corp. (NASDAQ: AAPL) and Shire PLC (NASDAQ: SHPG) is holding talks with AbbVie Inc. (NYSE: ABBV)
What to make of a stock market rumor? Scholarly opinion is split.
A Ball State University study of 871 published rumors during the 1980s found that trading on market overreactions would have resulted in annualized excess returns averaging 20 percent with 70 percent of the trades being profitable.
But another study by researchers at Dartmouth and the University of Michigan found that market manipulation by corporate insiders, brokers, underwriters and large shareholders hurts market efficiency and suggests a need for greater regulation.
A third study from Rochester Institute of Technology suggested investors who claim to discount the significance of rumors, tend to trade on them anyway. The study found investors are ill-equipped to evaluate rumors.
So take your pick. There were more utterly unconfirmed rumors to chose from Friday.:
Exact Holding (OTC: EXACT) is in takeover talks with KKR Financial
(NYSE: KFNA) and Apax Partners.
Caesars Entertainment Corp. (NASDAQ: CZR) hired Kirkland & Ellis LLP to advise an $17.4B debt restructuring.
Scorpio Tankers Inc. (NYSE: STNG) wants five container ships from Samsung Heavy Industries.
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