Stock price movements and trading behaviors around merger and acquisition announcements

Jin Young Yang, Reuben Segara and Jingwei Feng

International Journal of Managerial Finance, 2019, vol. 15, issue 4, 593-610

Abstract: Purpose - The 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/approach - This study uses event study methodology and cross-sectional regressions for abnormal returns. Findings - Results 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/value - This 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.

Keywords: Mergers and acquisitions; Korean stock market; Trading behaviours; Types of investors (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-07-2018-0204

DOI: 10.1108/IJMF-07-2018-0204

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