Stock price movements and trading behaviors around merger and acquisition announcements

Stock price movements and trading behaviors around merger and acquisition announcements PurposeThe purpose of this paper is to examine the relationship between price movements of target firms’ stocks and behaviors of local individual, local institutional and foreign investors in trading target firms’ stocks around mergers and acquisitions announcements in Korea.Design/methodology/approachThis study uses event study methodology and cross-sectional regressions for abnormal returns.FindingsResults reveal that the average abnormal return becomes significantly positive three days prior to the announcement date and becomes insignificant after the announcement date. Results also show that local individual investors tend to sell more intensely prior to announcements for target firms with larger wealth effects. In contrast, foreign investors tend to buy target stocks with larger wealth effects more intensely prior to the announcement date, and then they sell them more intensely in the post-announcement period.Originality/valueThis paper provides evidence that foreign investors are able to identify target stocks with large wealth effects prior to the announcement date and they realize short-term profits by selling them following the announcement. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

Stock price movements and trading behaviors around merger and acquisition announcements

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1743-9132
DOI
10.1108/IJMF-07-2018-0204
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine the relationship between price movements of target firms’ stocks and behaviors of local individual, local institutional and foreign investors in trading target firms’ stocks around mergers and acquisitions announcements in Korea.Design/methodology/approachThis study uses event study methodology and cross-sectional regressions for abnormal returns.FindingsResults reveal that the average abnormal return becomes significantly positive three days prior to the announcement date and becomes insignificant after the announcement date. Results also show that local individual investors tend to sell more intensely prior to announcements for target firms with larger wealth effects. In contrast, foreign investors tend to buy target stocks with larger wealth effects more intensely prior to the announcement date, and then they sell them more intensely in the post-announcement period.Originality/valueThis paper provides evidence that foreign investors are able to identify target stocks with large wealth effects prior to the announcement date and they realize short-term profits by selling them following the announcement.

Journal

International Journal of Managerial FinanceEmerald Publishing

Published: Aug 5, 2019

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