Predictability of Industry Returns After M&A Announcements

32 Pages Posted: 5 Mar 2006 Last revised: 5 Mar 2010

See all articles by Christian Funke

Christian Funke

Source For Alpha AG

Timo Gebken

Source For Alpha AG

Lutz Johanning

WHU - Otto Beisheim School of Management

Gaston Michel

Source For Alpha AG

Date Written: February 2006

Abstract

This paper documents a strong and prevalent drift in long-term industry returns after M&A announcements. Specifically, industries that experience positive average announcement reactions continue to do well in the future, while industries that experience negative average announcement reactions continue to do poorly. Industry M&A investment strategies, which buy positively reacting industries and sell negatively reacting industries, appear profitable even after controlling for size and book-to-market effects in returns. Profitability has strengthened over time and seems to exist also for the largest stocks. The evidence suggests that capital markets underreact to the industry-wide information provided by merger announcements.

Keywords: Asset pricing, mergers & acquisitions, industry returns

JEL Classification: G12, G34

Suggested Citation

Funke, Christian and Gebken, Timo and Johanning, Lutz and Michel, Gaston, Predictability of Industry Returns After M&A Announcements (February 2006). Available at SSRN: https://ssrn.com/abstract=887289 or http://dx.doi.org/10.2139/ssrn.887289

Christian Funke (Contact Author)

Source For Alpha AG ( email )

Kugelgasse 2-4
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Switzerland
+41-71-5112179 (Phone)

HOME PAGE: http://www.source-for-alpha.ch

Timo Gebken

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland

Lutz Johanning

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509 720 (Phone)

Gaston Michel

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland
+49-611-563561 (Phone)
+49-611-306061 (Fax)

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