How to test effect of Merger announcements

can you check this question and please comment because i have no idea how to answer this question?

Q: You are testing the effect of merger announcements on stock prices. (This is an event study.). Your procedure goes through the following steps.
Step 1: You choose the twenty biggest mergers of the year
Step 2: You isolate the date the merger became effective as the key day around which you will examine the data
Step 3: You look at the returns for the five days after the effective merger date
By looking at these returns (.13%) you conclude that you could not have made money on merger announcements. Are there any flaws that you can detect in this test? How would you correct for them? Can you devise a stronger test?

2 Answer(s)


They need to analyse the stratergy before going for the merger


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