Ringing the Bell: Does it Matter and Why?

We explore the ongoing debate between market efficiency and behavioral finance by examining the market’ s reaction to what most investors would consider an information-neutral event: a firm ringing the opening or closing bell on the NYSE. Consistent with behavioral theories, we find that firms who ring the opening bell experience, on average, a positive abnormal return on the event day; however, we find that the reaction is concentrated in a particular group of participants. Specifically, we find the abnormal returns are driven almost entirely by firms who are celebrating the transfer of their stock listing to the NYSE. Given the potential benefits and signals associated with such an event, the favorable reaction is more consistent with market efficiency than any type of behavioral bias (i.e., the event is not information- neutral). In a more general sense, we caution against blanket conclusions of inefficiency that may result from a failure to more closely examine underlying causes for certain market reactions.