Volume and volatility in stocks subject to takeovers: Australian evidence using daily data

Elaine Robyn Hutson, Colm Kearney

Research output: Contribution to journalArticleResearchpeer-review

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.
Original languageEnglish
Pages (from-to)273-296
Number of pages24
JournalJournal of Empirical Finance
Volume8
Issue number3
Publication statusPublished - 2001

Cite this

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title = "Volume and volatility in stocks subject to takeovers: Australian evidence using daily data",
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.",
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journal = "Journal of Empirical Finance",
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Volume and volatility in stocks subject to takeovers: Australian evidence using daily data. / Hutson, Elaine Robyn; Kearney, Colm.

In: Journal of Empirical Finance, Vol. 8, No. 3, 2001, p. 273-296.

Research output: Contribution to journalArticleResearchpeer-review

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