Misvaluation

Second, we investigate whether subsequent performance can be explained by market misvaluation before the SEO announcement date.

Misvaluation contributes to market inefficiencies: the winning bidder may not be the one with the greatest synergy, and the purchase price paid may exceed the target's true value.

We can observe, see Fig. 1, that for both naive and sophisticated modes the misvaluation and its subsequent updating may lead to significant changes in trading frequencies but not for trading prices in most of the scenarios considered.