A solution to the Palm—3Com spin-off puzzles

OMI Seminar Series

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.


Chester Spatt (CMU)

Tuesday, March 11, 2014 - 12:30
to 13:30