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Market Reaction to Announcement of Mergers and Acquisitions

Student: Ali Barhoum

Supervisor: Elena Rogova

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Finance (Master)

Final Grade: 7

Year of Graduation: 2020

Market Reaction to Announcement of Mergers and Acquisitions: Evidence from NYSE-listed firms The aim of this study is to test the reactions of the market with regards to the announcements of mergers and acquisitions, using an event study methodology, according to the three common models for measuring returns (the adjusted return model, the market model and the adjusted market model). This study analyzes 70 mergers and acquisitions announcements, between 2000 and 2019 by 56 firms listed in S&P 500 index– and their effects on share prices and looks for abnormal returns and cumulative abnormal return in a short period around the announcement day, which could be related to the use of privileged information and insider trading problem. The results of acquisition showed abnormal positive and significant returns in the days before the announcement of the acquisition. This might indicate to reveal a possible leakage of private information or anticipation of the news before the announcement. After the announcement day, the positive movement in the returns shows that the market is efficient and responsive to the news, thus having a large impact on the ARt and CARt. On the other hand, the results of mergers regarding ARt behavior in the days before the announcement were inconclusive.

Full text (added May 15, 2020)

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