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Predictability of Industry Returns After M&A Announcements

Abstract

This essay documents a strong and prevalent drift in longterm industry returns after M&A announcements. Specifically, industries that experience positive average announcement reactions continue to do well in the future, while industries that experience negative average announcement reactions continue to do poorly. Industry M&A investment strategies, which buy positively reacting industries and sell negatively reacting industries, appear profitable even after controlling for size and book-to-market effects in returns. Profitability has strengthened over time and seems to exist also for the largest stocks. The evidence suggests that capital markets underreact to the industrywide information provided by merger announcements.

Keywords

Stock Return Abnormal Return Cumulative Abnormal Return Average Industry Announcement Return 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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© Gabler | GWV Fachverlage GmbH, Wiesbaden 2008

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