Now suppose two unrelated small firms merge. Each will be operated as an independent unit of...
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Now suppose two unrelated small firms merge. Each will be operated as an independent unit of the merged company. Would you expect the stock market behaviour of the merged firm to differ from that of a portfolio of the two previously independent firms? How does the merger affect market capitalisation? What is the prediction of the Fama-French (FF) model for the risk premium on the combined firm? Do we see here a flaw in the FF model? Now suppose two unrelated small firms merge. Each will be operated as an independent unit of the merged company. Would you expect the stock market behaviour of the merged firm to differ from that of a portfolio of the two previously independent firms? How does the merger affect market capitalisation? What is the prediction of the Fama-French (FF) model for the risk premium on the combined firm? Do we see here a flaw in the FF model?
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