Despite the mounting evidence that stock misvaluation affects takeover characteristics and outcomes at the deal level, there remains a prolonged debate over whether mispricing drives aggregate industry-level merger activity. We depart from the extant literature and investigate whether stock misvaluation drives industry-level merger waves by contrasting the effects of acquirer valuation during “stock” and “cash” merger waves, defined using pure stock or cash acquisitions during 1981-2015. Using the timing of stock waves, we find that acquirer valuation peaks during wave periods, and acquirers have low stock performance in the 5-year period after the merger bid, with especially acute underperformance for mergers announced during stock waves. There is little evidence of such patterns around cash merger waves. These results suggest that equity misvaluation drives stock merger waves, and agency costs associated with overvalued equity prevent acquirer shareholders from reaping gains from merger waves.