A solution to the Palm - 3Com spin-off puzzles
Event details
| Date | 12.12.2014 |
| Hour | 10:30 › 12:00 |
| Speaker | Chester SPATT (Carnegie Mellon University) |
| Location | |
| Category | Conferences - Seminars |
This paper revisits the relative pricing of Palm and 3Com shares in 2000. We offer a simple rational explanation of the Palm/3Com price relationship before Palm’s spinoff is completed. Lending fees and spin-off uncertainty are crucially important to understanding the relative levels and co-movement of Palm and 3Com share prices. We use Palm’s post-spinoff forward prices (calculated from the market prices of calls and puts) and model the spin-off uncertainty in valuing 3Com. Considering forward pricing and spin-off uncertainty resolves many of the observed pricing puzzles, including the sharp change in relative price behavior once the spinoff uncertainty is resolved on May 8, 2000.
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