Abstract

http://ssrn.com/abstract=2230048
 


 



Merger Arbitrage Short Selling and Price Pressure


Tingting Liu


University of Georgia - C. Herman and Mary Virginia Terry College of Business

Juan (Julie) Wu


University of Nebraska at Lincoln

March 2014

Journal of Corporate Finance, 2014 Forthcoming

Abstract:     
We evaluate the over-valuation hypothesis and merger arbitrage price pressure hypothesis as potential explanations for the observed negative returns to stock acquirers around merger announcement. Using daily shorting flow data, we show that the majority of the negative announcement returns can be attributed to price pressure induced by merger arbitrage short selling. Additional analysis of shorting activity and associated returns for floating-exchange-ratio stock acquirers, at deal closings and among withdrawn stock deals further supports merger arbitrage price pressure explanation. We also find merger arbitrage activity increases with estimated arbitrage spread on a daily basis. As a whole, the results suggest that merger arbitrageurs play a critical role in stock mergers.

Number of Pages in PDF File: 42

Keywords: Merger arbitrage, short selling, mergers and acquisitions

JEL Classification: G14, G34


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Date posted: March 9, 2013 ; Last revised: May 22, 2014

Suggested Citation

Liu, Tingting and Wu, Juan (Julie), Merger Arbitrage Short Selling and Price Pressure (March 2014). Journal of Corporate Finance, 2014 Forthcoming. Available at SSRN: http://ssrn.com/abstract=2230048 or http://dx.doi.org/10.2139/ssrn.2230048

Contact Information

Tingting Liu
University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )
Brooks Hall
Athens, GA 30602-6254
United States
Juan (Julie) Wu (Contact Author)
University of Nebraska at Lincoln ( email )
Lincoln, NE 68588
United States
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