Merger Cycles: A Frequency Domain Approach


  •  The truncation point is about inline image, where N is the sample size. However, using different lag windows does not qualitatively change the results.

  •  We would like to thank Michael Waterson, Dimitris Politis and Bertrand Candelon as well as two referees and the editors of this journal for helpful comments on earlier drafts. We would also like to thank Christos Savva for his advice on the use of Gauss in section III. Of course, all errors that remain are the responsibilities of the authors alone.


Using frequency domain techniques, a cycle of 6-year duration at the aggregate level and coherent sectoral cycles of average 5-year duration are found in UK merger activity between 1969 and 2005. It is shown that business and capital market cycles jointly are causal for the merger cycle but the capital market cycle alone is not, suggesting that merger cycles may reflect disequilibria and/or market mis-valuation. Although the possibility of disequilibrium or strong behavioural influences will complicate social evaluation, no reason is found to advise against the current UK policy stance upon mergers.