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Stock price movements and trading behaviors around merger and acquisition announcements: Evidence from the Korean stock market

Jin Young Yang (College of Business, Zayed University – Abu Dhabi Campus, Abu Dhabi, United Arab Emirates)
Reuben Segara (Business School, University of Sydney, Sydney, Australia)
Jingwei Feng (Business School, University of Sydney, Sydney, Australia)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 29 May 2019

Issue publication date: 31 July 2019

Abstract

Purpose

The purpose of this paper is to examine the relationship between price movements of target firms’ stocks and behaviors of local individual, local institutional and foreign investors in trading target firms’ stocks around mergers and acquisitions announcements in Korea.

Design/methodology/approach

This study uses event study methodology and cross-sectional regressions for abnormal returns.

Findings

Results reveal that the average abnormal return becomes significantly positive three days prior to the announcement date and becomes insignificant after the announcement date. Results also show that local individual investors tend to sell more intensely prior to announcements for target firms with larger wealth effects. In contrast, foreign investors tend to buy target stocks with larger wealth effects more intensely prior to the announcement date, and then they sell them more intensely in the post-announcement period.

Originality/value

This paper provides evidence that foreign investors are able to identify target stocks with large wealth effects prior to the announcement date and they realize short-term profits by selling them following the announcement.

Keywords

Citation

Yang, J.Y., Segara, R. and Feng, J. (2019), "Stock price movements and trading behaviors around merger and acquisition announcements: Evidence from the Korean stock market", International Journal of Managerial Finance, Vol. 15 No. 4, pp. 593-610. https://doi.org/10.1108/IJMF-07-2018-0204

Publisher

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Emerald Publishing Limited

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