Post-Acquisition Performance in the Short and Long Run Evidence from the Copenhagen Stock Exchange 1993-1997

This paper investigates the short-run price adjustment around the acquisition announce-ment <p> and the long-run upward bias of the cross-sectional average buy-and-hold returns. <p> We apply the geometric Brownian motion model to decompose the cross-sectional ave r-age <p> long-run returns into mean components and volatility components. The decomposi-tion <p> is necessary in order to interpret security performance correctly using the measure of <p> wealth relatives. This procedure is useful for any studies of long-run security perform-ance. <p> The most surprising finding is that the long-horizon abnormal return after three <p> years is not significantly different from zero. This implies that the acquiring firms do not <p> under perform significantly compared to the market. That result stands in contrast to <p> findings of other studies, and it may reflect that earlier studies do not adjust for the vola-tility <p> component. This indicates that the market efficiency hypothesis is intact in the long <p> run. It is only in the very short run, i.e. a few days around the acquisition announcements, <p> that the market makes a significant adjustment to uphold the efficiency hypothesis.