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
Date Written: November 20, 2011
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: Suggested Citation