I am working on mergers and acquisitions data. All I have is announcement dates and acquirer and target companies from Bloomberg and deal type. what else do I need to run the data for abnormal profit? I have attached the file too.
https://www.amazon.co.uk/Energy-Investments-Adaptive-Profiting-Uncertainties/dp/1137591382/ref=sr_1_1?ie=UTF8&qid=1528016153&sr=8-1&keywords=ricardo+g+barcelona
In Chapter 13 of my book - Energy Investments: An adaptive approach to profiting from uncertainties - I cautioned against this type of empirical research. What you call abnormal profit (or loss) is made arbitrary by the time period you consider. For example, if you take the comparison of prices as before and after deal announcement, you will get all sorts of results, particularly for listed companies. The power of rumours move share prices. What you would usually find is share prices rump up on rumours, and fall on the news.
What I suggest is to look at the value of M&A as a contextual valuation, the contexts being the strategy and the subsequent opportunities that open up post acquisitions, divestments, or mergers.
Measure their securities or, portfolio's expected return based on the risk-free rate of return, beta and the expected market return.
Read more: Abnormal Return https://www.investopedia.com/terms/a/abnormalreturn.asp#ixzz5N1VG7OaL
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Dear Suman
For the market model version of the Sharpe-Lintner-Mossin CAPM all you need is the return of the security (cash dividends and stock prices adjusted for splits and stock dividends) and the return of the market (choose a broad stock market index that fits the stocks you are studying, e.g. if it is the US you may pick the NYSE index, CRSP index, S & P 500 index if they are large stocks, or NASDAQ if they are small stocks. If in the UK you might pick FTSE, etc.). The theoretical Sharpe CAPM included the risk-free rate (proxy in the US is long term (30 year) US Treasury bonds (some argue the proxy should be short term 90 day US T-bills) but this introduces measurement error and is unnecessary. There are other CAPMs such as Ross APT, and Fama-French 3 factor ( 5 factor, etc.).
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