Evidence of Excess Comovement in US Mergers

47 Pages Posted: 16 Nov 2012  

Per Östberg

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Christoph Wenk

University of Zurich - Department of Banking and Finance

Date Written: June 6, 2012

Abstract

This paper considers changes in market comovement of merging US firms. Comparing the expected to the actual post merger comovement, we find that the post merger beta exhibits excess comovement with the acquiring firm. This suggests that the firm’s comovement is at least partly determined by its investors. We find that the excess comovement is significantly greater in cash transactions, when target shareholders tender their entire stake, than in pure stock transactions. Additionally, we document that the excess comovement is greater when the target is included in the S&P 500 as a result of the merger.

Keywords: Mergers, Comovement, Segmentation, Method of Payment, Index Inclusion

JEL Classification: G34, G12, G02

Suggested Citation

Östberg, Per and Wenk, Christoph, Evidence of Excess Comovement in US Mergers (June 6, 2012). Swiss Finance Institute Research Paper No. 12-33. Available at SSRN: https://ssrn.com/abstract=2175597 or http://dx.doi.org/10.2139/ssrn.2175597

Per Östberg (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
+41 44 6342956 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Christoph Wenk

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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