By Christian Funke
Monetary researchers generally talk about the potency of capital markets and the lifestyles of attainable misreactions within the info incoporation technique. Christian Funke goals at constructing a greater figuring out of a crucial asset pricing.
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Additional resources for Selected Essays in Empirical Asset Pricing
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2) t 1 A selected list of this literature includes Barber and Lyon (1997), Kothari and Warner (1997), Fama (1998), Lyon, Barber and Tsai (1999), Mitchell and Stafford (2000) and Kothari and Warner (2007). The use of the BHAR methodology is substantiated by the fact that its statistical problems only become severe at very long post-event horizons such as three to five years. Therefore, as I focus on shorter horizons up to a year after the event, I encounter less severe statistical problems than other long-term performance studies.
Therefore, the objective of this essay is to investigate whether there are systematic differences in industry returns after M&A announcements depending on the initial intra-industry effects of the deal. Using a dataset of 16,483 transactions that occur within one of 20 industries between 1985 and 2002 I investigate whether the average industry reaction in previous periods affects the intra-industry effects of transaction announcements in later periods. I find that this is indeed the case: the cumulative abnormal return (CAR) at the announcement of an M&A transaction depends on the average reaction to merger announcements in the same industry in the previous month.
I base my approach on a broad industry classification using 12 industry sectors (see footnote 5), as I rely on the correlation to clearly identify related rivals and want to avoid reducing the pool of potential rival firms too much by using a narrow industry definition, such as the 48 Fama and French (1997) industries. In the following analysis I focus on results using the 30 most-correlated rivals to guarantee a sufficient sample size for the empirical investigations involving large return events.