Market reaction to the information that a activist holds over 5% of the firm's stock

Abstract

I constructed the stock artificial market in order to analyze why an activist's announcement of the information that he holds over 5% of the firm's stock brings about rising of the stock price. I prepared two hypothesis. The first hypothesis is that the stock price rises because of speculators who consider the announcement to be the sign that the firm is undervalued. the second hypothesis is that investors expect jawboning rather than proxy contest. As a result, I found that the expectation for jawboning is much larger than proxy contest. Many investors regard the effect of jawboning as important.