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Technology transactions, announcement effect, and reversal: Dissecting an anomaly

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  • Chazi, Abdelaziz
  • Khallaf, Ashraf
  • Liu, Yi
  • Zantout, Zaher

Abstract

We examine the short term stock price performance of firms that acquire or sell technology rights. We find significant positive announcement-period abnormal returns to the acquirers and sellers. However, the price increases reverse during the subsequent twenty trading days. These quick fortune reversals cannot be attributed to methodology; they prevail in the late 1970s through the 2000s, in bear and bull stock markets, and in both high and low technology industries. Upon splitting the sample into two subsamples comprised each of stocks with either pre-announcement price run-up or decline; we find that the abnormal return reversal is confined to the latter subsample. Stocks that witness price run-up prior to the announcement do not reverse to original prices but lose the momentum right after the announcement-period. We believe this is caused by the combination effect of the momentum prior to-and the impact of the announcement.

Suggested Citation

  • Chazi, Abdelaziz & Khallaf, Ashraf & Liu, Yi & Zantout, Zaher, 2014. "Technology transactions, announcement effect, and reversal: Dissecting an anomaly," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 371-381.
    • Handle: RePEc:eee:quaeco:v:54:y:2014:i:3:p:371-381
    DOI: 10.1016/j.qref.2014.03.004
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    More about this item

    Keywords

    Market efficiency; R&D investment; Intellectual property rights;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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