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Price Pressure around Mergers


  • Mark Mitchell,

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    • Mitchell is at CNN Partners; Pulvino is at Northwestern University; and Statford is at Harvard Business School. We thank Malcolm Baker, Joshua Coval, Harry DeAngelo, Diane Garnick, Peter Hecht, Ravi Jagannathan, Dirk Jenter, Owen Lamont, Mike Maloney, Vefa Tarhan, an anonymous referee, and seminar participants at Columbia University, London Business School's Centre for Hedge Fund Research and Education, MIT, Michigan State University, 2002 NBER Corporate Finance Summer Institute, Northwestern University, Q Group, Society for Quantitative Analysts, Tulane University, Virginia Polytechnic Institute, and University of Virginia for helpful comments. We also thank Rocky Bryant, Yan Krasov, and Linda Rabel for excellent research assistance.
  • Todd Pulvino,

  • Erik Stafford


This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uninformed shifts in excess demand, but that these effects are short-lived, consistent with the notion that short-run demand curves for stocks are not perfectly elastic. We estimate that nearly half of the negative announcement period stock price reaction for acquirers in stock-financed mergers reflects downward price pressure caused by merger arbitrage short selling, suggesting that previous estimates of merger wealth effects are biased downward.

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