Excess Comovement in International Equity Markets: Evidence from Cross-Border Mergers

Posted: 1 Jun 2010

See all articles by Richard A. Brealey

Richard A. Brealey

London Business School

Ian A. Cooper

London Business School

Evi Kaplanis

London Business School

Multiple version iconThere are 3 versions of this paper

Date Written: March 4, 2010

Abstract

Using a large sample of cross-border mergers we measure the effect of a change in location on systematic risk. We document a large, widespread, and robust effect. When a target firm's location moves as a result of an international merger, a large part of its systematic risk switches from being related to its home equity market to that of the acquirer. On average the beta of the pooled target and acquirer with respect to the acquirer market increases by 0.155 and the beta with respect to the target market declines by 0.117. This is equivalent to an excess shift of about 0.5 in the target's beta from its home market to that of the acquirer. We test whether the change in systematic risk can be explained by fundamental factors related to changes in the operations of the firm or merger synergy and find that it cannot.

Keywords: International Mergers, International Equity Market Integration, Stochastic Discount Factors, International Betas, Segmented Markets, Primary Listing

JEL Classification: F23, F36, G12, G15, G34

Suggested Citation

Brealey, Richard A. and Cooper, Ian Anthony and Kaplanis, Evi, Excess Comovement in International Equity Markets: Evidence from Cross-Border Mergers (March 4, 2010). Review of Financial Studies, Vol. 23, No. 4, pp. 1718-1740, April 2010. Available at SSRN: https://ssrn.com/abstract=1353364

Richard A. Brealey

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 207 262 5050 Ext. 3462 (Phone)
+44 207 724 3317 (Fax)

Ian Anthony Cooper (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 171 262 5050 (Phone)

Evi Kaplanis

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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