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