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Excess Comovement in International Equity Markets: Evidence from Cross-border Mergers

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  • Richard A. Brealey
  • Ian A. Cooper
  • Evi Kaplanis

Abstract

Using a large sample of cross-border mergers, we measure the effect of a change in location on systematic risk. When a target firm's location moves, a large part of its systematic risk switches from being related to its home equity market to that of the acquirer. On average, the change in betas is equivalent to an excess shift of about 0.5 in the target's beta from its home market to that of the acquirer. We test whether the change in systematic risk can be explained by fundamental factors related to changes in the operations of the firm or merger synergy and find that it cannot. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Richard A. Brealey & Ian A. Cooper & Evi Kaplanis, 2010. "Excess Comovement in International Equity Markets: Evidence from Cross-border Mergers," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1718-1740, April.
  • Handle: RePEc:oup:rfinst:v:23:y:2010:i:4:p:1718-1740
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    File URL: http://hdl.handle.net/10.1093/rfs/hhp104
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    Cited by:

    1. repec:eee:intfin:v:49:y:2017:i:c:p:74-87 is not listed on IDEAS
    2. Anufriev, Mikhail & Bottazzi, Giulio & Marsili, Matteo & Pin, Paolo, 2012. "Excess covariance and dynamic instability in a multi-asset model," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1142-1161.
    3. Kaul, Aditya & Mehrotra, Vikas & Stefanescu, Carmen, 2016. "Location and excess comovement," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 293-308.

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