Merger Cycles: A Frequency Domain Approach

Using frequency domain techniques, a cycle of 6-year duration at the aggregate level and coherent sectoral cycles of average 5-year duration are found in UK merger activity between 1969 and 2005. It is shown that business and capital market cycles jointly are causal for the merger cycle but the capital market cycle alone is not, suggesting that merger cycles may reflect disequilibria and/or market mis-valuation. Although the possibility of disequilibrium or strong behavioural influences will complicate social evaluation, no reason is found to advise against the current UK policy stance upon mergers.