Is the value effect due to M&A deals? Evidence from the Italian stock market

• Published in: Economic notes - Monte Paschi Siena Vol. 51; no. 1
• Main Author: Roma, Antonio
• Format: Journal Article
• Language: English
• Published: Siena Blackwell Publishing Ltd 01-02-2022
• Subjects: Averages; Fama–French model; Growth stocks; merger arbitrage; Securities markets; Stock exchanges; value effect; Value stocks
• ISSN: 0391-5026; 1468-0300
• DOI: 10.1111/ecno.12194

This paper empirically characterises the value effect detected in the Italian stock market for the sample period 2000–2018 based on the value premium offered for the acquisition of a value stock. Bids on value stock (as opposed to bids on growth stocks) generate a large and statistically significant average return on the holding of the target in the deal window. Returns on target stocks for a bid make up to two‐thirds of the average return on the long side of the Fama and French high book‐to‐market minus low book‐to‐market (HML) portfolio. The other significant component of the average return of HML is due to short‐selling small‐growth stocks. As evidenced in previous literature, this is often difficult to implement from a practical point of view.