Stock Price Reaction to Merger Announcements: an Empirical Note on German Markets

Finance & Accounting
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Stock Price Reaction to Merger Announcements: an Empirical Note on German Markets Abstract An analysis of the behavior of the German stock market pertaining to mergers and corporate acquisitions is performed. Legal ramifications concerning variations in German law compared with other stock markets to which it is strongly tied are analyzed with respect to the consequences upon stock prices and abnormal returns in general.


Comprehensive data on a range of German companies is assembled and correlated as a means of quantifying the degree of abnormal returns within a given time interval, measured from the date of the merger announcement. Ramifications of these abnormal returns are discussed with respect to ongoing trends in the German market. Introduction Essential to any attempt to understand market movements are fluctuations is the analysis of financial signals. Finance being an issue of perception as much as mathematics, the public response to warning signs and indicators is an integral predictive tool for market analysis in any country. In this particular case, reaction to - and indicators prior to corporate mergers deserves special attention. The quantification of market response to merger announcements has the obvious potential of transforming the financial landscape; noteworthy questions to discuss in this analysis include whether information asymmetry - in the form of insider trading has a definitive role in the movements of high-level reactionary transactions. Other issues include whether finance regulations generate a sufficient influence to guide market forces in most cases. ...
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