Merger Momentum and Investor Sentiment: The Stock Market Reaction to Merger Announcements

Richard J. Rosen

Federal Reserve Bank of Chicago – Economic Research

Journal of Business, Vol. 79, No. 2, March 2006


This paper examines the effects of mergers on bidding firms’ stock prices. We find evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a «hot» merger market) or if the overall stock market is doing better. However, there is long run reversal. Long-run bidder stock returns are lower for mergers announced when the either merger or stock markets were hot at the time of the merger than for those announced at other times.

Merger Momentum and Investor Sentiment- The Stock Market Reaction to Merger Announcements

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