Volatility in Stocks Subject to Takeover Bids: Australian Evidence Using Daily Data

31 Pages Posted: 6 Jan 2011

See all articles by Elaine Hutson

Elaine Hutson

Monash University - Dept of Banking and Finance; Financial Research Network (FIRN)

Colm Kearney

Monash University - Monash Business School

Date Written: 2001

Abstract

Using daily price and volume data on 112 of the largest takeover targets in Australia during the period 1985 to 1993, we find that conditional price volatility declines after the takeover announcement. This decline is greatest for targets of cash bids and smallest for targets of share-exchange bids. We argue that the phenomenon is due to convergence of trader opinion regarding the value of the target stock, and reflects a change in the price formation process that has not hitherto been recognised. Our findings have implications for event studies of takeovers that inappropriately assume a time-invariant risk-return relation, and also for regulatory policies in the market for corporate control.

Keywords: takeover targets, mergers and acquisitions, conditional volatility, ARCH, mixture of distributions model

Suggested Citation

Hutson, Elaine and Kearney, Colm, Volatility in Stocks Subject to Takeover Bids: Australian Evidence Using Daily Data (2001). Journal of Empirical Finance, Vol. 8, No. 3, 2001, Available at SSRN: https://ssrn.com/abstract=1734763

Elaine Hutson (Contact Author)

Monash University - Dept of Banking and Finance ( email )

PO Box 197
Caulfield East, Victoria 3145
Australia
+61399032110 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Colm Kearney

Monash University - Monash Business School ( email )

Sir John Monash Drive
Caulfield
Melbourne, Victoria 3168
Australia
+353399031021 (Phone)

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