Stock's price behaviour around corporate merger and acquisition announcements: Evidence from the NYSE
Item
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Title
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Stock's price behaviour around corporate merger and acquisition announcements: Evidence from the NYSE
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Identifier
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d_2009_2013:da9945eb0172:10541
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identifier
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10846
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Creator
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Bershova, Nataliya V.,
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Contributor
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Robert A. Schwartz
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Date
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2010
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Language
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English
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Publisher
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City University of New York.
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Subject
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Finance | Efficient price | Implicit trading costs | Price discovery
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Abstract
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Efficient price discovery is one of the most important qualities of a financial market. Assessing a market's efficiency of price discovery is a challenging topic because efficient prices are not directly observable. It is not clear how to measure the extent to which actual prices conform to efficient prices. In this study, we use a methodology based on a state space model which deals naturally with short-term microstructure noise and enables the estimation of the unobservable prices and by implication, the pricing error. We investigate the contribution of non-instantaneous price discovery to intraday stock's price volatility around US corporate merger and acquisition announcements for a sample of 53 NYSE stocks from 2004 to 2008 using the TAQ data.;Specifically, we model and estimate non-instantaneous price discovery effects that are associated with partial price adjustments to merger and acquisition (M&A) announcements for target names. We estimate price impacts from order imbalances that create pressure on a stock's price and cause a stock's price to move in a direction of order flow using one minute differencing intervals in the day of the merger news and the following day excluding the first 30 and the last 30 minutes of the trading session. Partial price adjustments may result in market over/under reaction to M&A news. To address this issue we also model and estimate market over/under reaction to merger news. We analyze the estimates of price impact and market over/under reaction to M&A announcements by contrasting the results in an M&A environment with the estimates observed in no-news days and before M&A news days. Our results shed light on price discovery around M&A announcements and its contribution to accentuated stock's price volatility.;We find evidence of a protracted price discovery process following M&A news that takes at least two days after public merger announcements. Our findings reveal a significantly more informative period in two days following M&A announcements with the information flow per unit of time a factor 2 higher compared to the pre-announcement period and no-news days.
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Economics
