Quantitative Article Blog Post

The purpose of the article is "to test market efficiency with respect to merger and acquisition announcements using standard event study methodology."

There are three forms of Market Efficiency: Weak, Semi-Strong, and Strong, that explain how quickly the Market will react to publicly announced information. And this article focuses on the semi-strong form.

The type of this research is hypothesis testing. The Efficient Market Hypothesis states that investors should not be able to earn above normal returns in the Market, due to the fact that the Market operates with all pertinent information taken into account.

"In order to test the Semi-Strong Market in relation to the announcement of company mergers the follow hypotheses are formulated:

H10: The Risk Adjusted Return of the stock price of the sample of forms announcing a merger is not significantly affected by this type of information on the announcement date.

H11: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is significantly affected in a positive way by this type of information on the announcement date

H20: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is not significantly affected by this type of information around the announcement date, as defined by the event period.

H21: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is significantly affect in a positive way around the announcement date, as defined by the event period."

According to this study, author suggests that a merger should make a shareholder optimistic about returns.


Reference:

http://www.aabri.com/manuscripts/09142.pdf