Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements

39 Pages Posted: 15 Dec 2005

See all articles by Richard J. Rosen

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the effects of mergers on bidding firms' stock prices. We find evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a "hot" merger market) or if the overall stock market is doing better. However, there is long run reversal. Long-run bidder stock returns are lower for mergers announced when the either merger or stock markets were hot at the time of the merger than for those announced at other times.

Keywords: mergers, investor sentiment, long-run reaction, merger momentum, hot markets

JEL Classification: G34, G14

Suggested Citation

Rosen, Richard J., Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements. Journal of Business, Vol. 79, No. 2, March 2006, Available at SSRN: https://ssrn.com/abstract=870010

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