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Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements

Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements
Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements
This article demonstrates that the risk profile of acquiring banks’ common stock changes in the aftermath of a merger announcement when examining 177 large merger deals in the United States spanning from 1998 to 2010 and inclusive of the fifth and sixth merger waves. There is a tendency for beta risk to rise markedly immediately following such announcements and remains relatively high even two years afterwards. This corroborates the view that the newly consolidated big banks resulting from mergers entail higher systematic risk and, instead of providing risk diversification to shareholders, exhibit greater comovement with the market. The broad asset pricing implication here is that the ‘too big to fail’ mentality that arises from large bank mergers actually translates into more risk for shareholders and susceptibility to adverse movements in the aggregate market.
1042-4431
47-58
Bozos, Konstantinos
227090e9-e8ba-4686-9c52-996cecdc342c
Koutmos, Dimitrios
542bf98b-f0bb-4072-bc2e-9806f6ca0599
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Bozos, Konstantinos
227090e9-e8ba-4686-9c52-996cecdc342c
Koutmos, Dimitrios
542bf98b-f0bb-4072-bc2e-9806f6ca0599
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090

Bozos, Konstantinos, Koutmos, Dimitrios and Song, Wei (2013) Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements. Journal of International Financial Markets, Institutions and Money, 27, 47-58. (doi:10.1016/j.intfin.2013.07.007).

Record type: Article

Abstract

This article demonstrates that the risk profile of acquiring banks’ common stock changes in the aftermath of a merger announcement when examining 177 large merger deals in the United States spanning from 1998 to 2010 and inclusive of the fifth and sixth merger waves. There is a tendency for beta risk to rise markedly immediately following such announcements and remains relatively high even two years afterwards. This corroborates the view that the newly consolidated big banks resulting from mergers entail higher systematic risk and, instead of providing risk diversification to shareholders, exhibit greater comovement with the market. The broad asset pricing implication here is that the ‘too big to fail’ mentality that arises from large bank mergers actually translates into more risk for shareholders and susceptibility to adverse movements in the aggregate market.

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More information

e-pub ahead of print date: 14 August 2013
Published date: 1 December 2013

Identifiers

Local EPrints ID: 433993
URI: http://eprints.soton.ac.uk/id/eprint/433993
ISSN: 1042-4431
PURE UUID: 9cc19e5a-a5a3-4407-a89f-e99ea2165a06

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Date deposited: 10 Sep 2019 16:30
Last modified: 07 Jan 2022 23:04

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Contributors

Author: Konstantinos Bozos
Author: Dimitrios Koutmos
Author: Wei Song

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