Evidence on Changes in Time Varying Volatility Around Bonus and Rights Issue Announcements

International Journal of Emerging Markets, Forthcoming

27 Pages Posted: 22 Nov 2011

See all articles by Madhuri Malhotra

Madhuri Malhotra

Loyola Institute of Business Administration

M. Thenmozhi

Indian Institute of Technology Madras

G. ArunKumar

Indian Institute of Technology (IIT), Madras

Date Written: November 20, 2011

Abstract

The short term and long term stock price volatility changes around bonus and rights issue announcements have been examined using historical volatility estimation and time varying volatility approach. The results show that the historical volatility has increased after bonus and rights issue announcements. Volatility persistence and unconditional volatility have also increased after the bonus and rights issue announcements. The results support the finding of Medeiros and Matsumoto (2006) but are contrary to the results of Li and Engle (1998), Connoly and Stivers (2005), and Boyd et al. (2005), who report decrease in volatility following the event announcements. This evidence, extendable to any other type of issue announcement, is consistent with theories stating that volatility increases after the seasoned capital issue announcements.

Keywords: Bonus issue, rights Issue, volatility, ARCH, GARCH (1, 1), Indian stock market

JEL Classification: G14, G15, D82

Suggested Citation

Malhotra, Madhuri Satsangi and Thenmozhi, M. and ArunKumar, G., Evidence on Changes in Time Varying Volatility Around Bonus and Rights Issue Announcements (November 20, 2011). International Journal of Emerging Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1962265

Madhuri Satsangi Malhotra (Contact Author)

Loyola Institute of Business Administration ( email )

Loyola College
Chennai
Tamil Nadu
India
+91 044 28177191 (Phone)

HOME PAGE: http://www.liba.edu

M. Thenmozhi

Indian Institute of Technology Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu
India

G. ArunKumar

Indian Institute of Technology (IIT), Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu 600036
India

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