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Takeover Prediction and Portfolio Performance: A Note

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  • Ronan G. Powell

Abstract

This paper empirically tests whether it is possible to generate abnormal returns from investing in a portfolio of predicted successful takeover targets. Portfolios are formed on the basis of predictions from models similar to those estimated by Palepu (1986). However, unlike Palepu (1986), the portfolios in this paper are formed using a decision rule that results in smaller portfolios with higher average takeover probabilities. This provides a stronger test of whether share prices reflect future takeover probabilities. The results show that while the models have significant explanatory power, the portfolios fail to beat the return on the market over a 12‐month holding‐period.

Suggested Citation

  • Ronan G. Powell, 2001. "Takeover Prediction and Portfolio Performance: A Note," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7‐8), pages 993-1011, September.
    • Handle: RePEc:bla:jbfnac:v:28:y:2001:i:7-8:p:993-1011
    DOI: 10.1111/1468-5957.00402
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