Hot Markets, Momentum and Investor Sentiment in UK Acquisitions

16 Pages Posted: 27 Jan 2004

See all articles by Hardy M. Thomas

Hardy M. Thomas

University of Essex

Jerry Coakley

University of Essex - Essex Business School

Date Written: January 2004

Abstract

We examine the links between hot markets and momentum in explaining merger waves using a sample of 881 UK acquisitions from 1985 to 2000. We find evidence of short run positive abnormal returns (or merger momentum) in both hot and cold markets. We find evidence of long run reversal. The post acquisition abnormal returns are negative over three years for the whole sample. We also find an interesting pattern in the long run reversal. Mergers announced in hot markets have higher announcement period abnormal returns than mergers announced in cold markets consistent with momentum. Over a one year horizon there is a reversal in the abnormal returns consistent with investor sentiment: mergers announced in hot markets have lower negative returns than mergers announced in cold markets. Interestingly, the abnormal returns over three years show a further reversal and are higher for mergers announced in hot markets than for those announced in cold markets.

Keywords: Irrational investors, Long-run underperformance

JEL Classification: G34

Suggested Citation

Thomas, Hardy Mathew and Coakley, Jerry, Hot Markets, Momentum and Investor Sentiment in UK Acquisitions (January 2004). Available at SSRN: https://ssrn.com/abstract=493063 or http://dx.doi.org/10.2139/ssrn.493063

Hardy Mathew Thomas

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
44 01 206-873415 (Phone)
44 1206-873429 (Fax)

Jerry Coakley

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

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