Behavioral Finance.

• Position: Bureau News

The NBER's Working Group on Behavioral Finance met in Chicago on April 1. Directors Robert J. Shiller of Yale University and Richard H. Thaler of the University of Chicago organized this program:

Ulrike Malmendier, Stanford University and NBER, and Enrico Moretti, University of California, Berkeley and NBER, "Winning by Losing: Evidence on Overbidding in Mergers"

Discussant: Yiming Qian, University of Iowa

Harrison Hong, Princeton University, and Jose Scheinkman and Wei Xiong, Princeton University and NBER, "Advisors and Asset Prices: A Model of the Origins of Bubbles"

Discussant: Pietro Veronesi, University of Chicago

Malcolm Baker, Harvard University and NBER; Stefan Nagel, Stanford University and and NBER; and Jeffrey Wurgler, New York University and NBER, "The Effects of Dividends on Consumption"

Discussant: Erik Hurst, University of Chicago and NBER

Lauren Cohen, Yale University, and Andrea Frazzini, University of Chicago, "Economic Links and Predictable Returns"

Discussant: Josef Lakonishok, University of Illinois and NBER

Amil Dasgupta, Andrea Prat, and Michela Verardo, London School of Economics "The Price of Conformism"

Discussant: Markus Brunnermeier, Princeton University

Nicholas Barberis, Yale University and NBER, and Wei Xiong, "What Drives the Disposition and Momentum Effects ? An Analysis of a Recent Preference-Based Explanation"

Discussant: Bing Han, Ohio State University

Do acquiring companies profit from acquisitions, or do acquiring CEOs destroy shareholder value? Answering this question empirically is difficult since the hypothetical counterfactual is hard to determine. While negative stock reactions to the announcement of mergers are consistent with value-destroying mergers, they are also consistent with overvaluation of the acquiror at the time of the announcement. Similarly, studies of long-term returns to acquirors are affected by slowly declining overvaluation. Malmendier and Moretti study bidding contests to address this identification issue. They construct a novel dataset on all mergers with overlapping bids of at least two potential acquirors between 1983 and 2004. They then compare adjusted abnormal returns of all candidates both before and after a merger fight. The key identifying assumption is that the returns and other corporate outcomes of losing bidders are a valid counterfactual for the winner, after employing the usual controls and matching criteria. The authors find that stock returns of bidders are not...