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.

Location:
Speaker(s):

Chester Spatt (CMU)

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