Merger Arbitrage Short Selling and Price Pressure

42 Pages Posted: 9 Mar 2013 Last revised: 24 May 2021

See all articles by Tingting Liu

Tingting Liu

Iowa State University ; European Corporate Governance Institute (ECGI)

J. (Julie) Wu

University of Nebraska - Lincoln

Date Written: March 1, 2014


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of shorting activity and associated returns for floating-exchange-ratio stock acquirers, at deal closings and among withdrawn stock deals further supports merger arbitrage price pressure explanation.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.

Keywords: Merger arbitrage, short selling, mergers and acquisitions

JEL Classification: G14, G34

Suggested Citation

Liu, Tingting and Wu, J. (Julie), Merger Arbitrage Short Selling and Price Pressure (March 1, 2014). Journal of Corporate Finance 27, 36-54, 2014, Available at SSRN: or

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

J. (Julie) Wu (Contact Author)

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics