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Price Pressure around Mergers
Author(s) -
Mitchell Mark,
Pulvino Todd,
Stafford Erik
Publication year - 2004
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2004.00626.x
Subject(s) - arbitrage , economics , stock (firearms) , stock price , monetary economics , financial economics , series (stratigraphy) , engineering , biology , mechanical engineering , paleontology
This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uninformed shifts in excess demand, but that these effects are short‐lived, consistent with the notion that short‐run demand curves for stocks are not perfectly elastic. We estimate that nearly half of the negative announcement period stock price reaction for acquirers in stock‐financed mergers reflects downward price pressure caused by merger arbitrage short selling, suggesting that previous estimates of merger wealth effects are biased downward.