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Acquisition Effects on Realized Volatility

Acquisition Effects on Realized Volatility. Sean Puneky Econ 201 FS 20 April 2009. Short Recap. Searching for a link between M&A activity or Dividend releases and RV

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Acquisition Effects on Realized Volatility

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  1. Acquisition Effects on Realized Volatility Sean Puneky Econ 201 FS 20April 2009

  2. Short Recap • Searching for a link between M&A activity or Dividend releases and RV • The theory is that if new information about an acquisition is released to the market, volatility will increase as the market adjusts to the new true price • Traditionally, when a stock goes ex-Dividend, the price of the stock drops reflecting decrease in future cash flows • This decrease should be reflected in RV

  3. Problems Last Time • Uncertainty in timing of the announcements • I have checked Factiva for press releases for every announcement included in data set • Dividend announcements were sent forward to the next trading day as they were made after the market had closed

  4. Problems Last Time • Uncertainty in acquisition value • Much of the Microsoft acquisition value data was unavailable even after consulting SEC filings • Medtronic pricing data is widely available • Can be used to test hypothesis

  5. Summary Data (Microsoft) • 2891 days in data set • Realized Variance taken at 8 minutes • 126 days (4.36%) had M&A Activity • 89 days (3.08%) had acquisitions • 37 days (1.28%) had stakes

  6. Distribution of Microsoft Acquisitions

  7. Microsoft: Acquisitions

  8. Microsoft: Acquisitions

  9. Distribution of Microsoft Acquisitions

  10. Summary: 1999 & 2000 • Observations: 499 • Activity: 45 (9.02%) • Acquisition: 18 (3.61%) • Stake: 27 (5.41%)

  11. Microsoft: Acquisitions (1999 & 2000)

  12. Microsoft: Acquisitions (1999 & 2000)

  13. Microsoft: Dividends *First Dividend in 2003, 1497 observations

  14. Microsoft: Conclusions • M&A Activity is not a significant factor • Even when the percentage of acquisition days increased, the variables did not become significant • The Ex-Dividend date is the only significant variable

  15. Medtronic: M&A Activity *28 acquisitions over 2896 observed days

  16. Medtronic: Dividends

  17. Medtronic: Conclusions • Even after adding acquisition value, M&A activity is still insignificant • Appears to be a dead-end • Ex-Dividend date is significant for Medtronic

  18. Boeing: Dividend

  19. Conclusions • M&A activity is likely not a significant driver of realized variance • May increase volatility over a period, but hard to say which specific day should be effected • Several different announcements surround any acquisition story, so it is difficult to determine which to include in a study

  20. Conclusions • Effects of the Ex-Dividend date are also inconclusive • Some stocks have significant effects on realized volatility while others do not • If possible, will run program and regression on a few more equities to pin down the effect before final paper

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