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

Abstract

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.