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Price Pressure Around Mergers

Harvard NOM Working Paper No. 02-22

HBS Finance Working Paper No. 03-029

40 Pages Posted: 25 Jul 2002

See all articles by Mark L. Mitchell

Mark L. Mitchell

University of Chicago - Booth School of Business; AQR Arbitrage, LLC

Todd C. Pulvino

AQR Capital Management, LLC; CNH Partners

Erik Stafford

Harvard Business School - Finance Unit

Date Written: July 2002

Abstract

This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uniformed shifts in excess demand, but that these effects are fairly short-lived, consistent with the notion that short-run demand curves for stocks are not perfectly elastic. We estimate that roughly one half of the negative announcement period stock price reaction for acquirers in stock-financed mergers reflects downward price pressure caused by merger arbitrage short selling.

Keywords: Mergers, Short-selling, Arbitrage, Price Pressure, Downward Sloping Demand Curves

JEL Classification: G1, G3

Suggested Citation

Mitchell, Mark L. and Pulvino, Todd C. and Stafford, Erik, Price Pressure Around Mergers (July 2002). Harvard NOM Working Paper No. 02-22, HBS Finance Working Paper No. 03-029, Available at SSRN: https://ssrn.com/abstract=318539 or http://dx.doi.org/10.2139/ssrn.318539

Mark L. Mitchell

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

AQR Arbitrage, LLC ( email )

One Greenwich Plaza
4th Floor
Greenwich, CT 06830
United States
(203) 742-3001 (Phone)

Todd C. Pulvino

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

2 Greenwich Plaza
1st Floor
Greenwich, CT 06830
United States
203-742-3002 (Phone)
203-742-3072 (Fax)

Erik Stafford (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-8064 (Phone)
617-496-7357 (Fax)

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