Testing the mixture of distributions hypothesis on target stocks

Rachael Carroll, Colm Kearney

    Research output: Contribution to journalArticleResearchpeer-review

    7 Citations (Scopus)

    Abstract

    We test the mixture of distributions hypothesis (MDH) in which equity trading volumes and return volatilities are derived from an unobservable mixing variable, the speed of information flow to the market. Interpreting the public announcement of a takeover offer as a regime-changing firm-specific informational event, we study the daily trading volumes and price volatilities of 190 US targets from four years before the takeover announcement until the conclusion of the bid. We find strong evidence for MDH-consistent positive volume-volatility relationships before and after takeover announcements that are supportive of the applicability of the MDH in the market for corporate control.
    Original languageEnglish
    Pages (from-to)1 - 14
    Number of pages14
    JournalJournal of International Financial Markets, Institutions and Money
    Volume39
    DOIs
    Publication statusPublished - 2015

    Cite this

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    title = "Testing the mixture of distributions hypothesis on target stocks",
    abstract = "We test the mixture of distributions hypothesis (MDH) in which equity trading volumes and return volatilities are derived from an unobservable mixing variable, the speed of information flow to the market. Interpreting the public announcement of a takeover offer as a regime-changing firm-specific informational event, we study the daily trading volumes and price volatilities of 190 US targets from four years before the takeover announcement until the conclusion of the bid. We find strong evidence for MDH-consistent positive volume-volatility relationships before and after takeover announcements that are supportive of the applicability of the MDH in the market for corporate control.",
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    language = "English",
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    Testing the mixture of distributions hypothesis on target stocks. / Carroll, Rachael; Kearney, Colm.

    In: Journal of International Financial Markets, Institutions and Money, Vol. 39, 2015, p. 1 - 14.

    Research output: Contribution to journalArticleResearchpeer-review

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    AU - Kearney, Colm

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    N2 - We test the mixture of distributions hypothesis (MDH) in which equity trading volumes and return volatilities are derived from an unobservable mixing variable, the speed of information flow to the market. Interpreting the public announcement of a takeover offer as a regime-changing firm-specific informational event, we study the daily trading volumes and price volatilities of 190 US targets from four years before the takeover announcement until the conclusion of the bid. We find strong evidence for MDH-consistent positive volume-volatility relationships before and after takeover announcements that are supportive of the applicability of the MDH in the market for corporate control.

    AB - We test the mixture of distributions hypothesis (MDH) in which equity trading volumes and return volatilities are derived from an unobservable mixing variable, the speed of information flow to the market. Interpreting the public announcement of a takeover offer as a regime-changing firm-specific informational event, we study the daily trading volumes and price volatilities of 190 US targets from four years before the takeover announcement until the conclusion of the bid. We find strong evidence for MDH-consistent positive volume-volatility relationships before and after takeover announcements that are supportive of the applicability of the MDH in the market for corporate control.

    UR - http://dx.doi.org/10.1016/j.intfin.2015.05.003

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    DO - 10.1016/j.intfin.2015.05.003

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    JO - Journal of International Financial Markets, Institutions and Money

    JF - Journal of International Financial Markets, Institutions and Money

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