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

Abstract

Using a large sample of cross-border mergers we measure the effect of a change in location on systematic risk. When a target firm's location moves a large part of its systematic risk switches from being related to its home equity market to that of the acquirer. On average the change in betas 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