The effect of mergers on implied volatility of equity options

Gero Geppert and David R. Kamerschen

International Review of Financial Analysis, 2008, vol. 17, issue 2, 330-344

Abstract: This paper uses a sample of 25 large mergers from 1996 to 2004 to study the effect of mergers on the implied volatilities of equity options. The results indicate a statistically significant increase in volatility beyond the amount predicted if the transaction were effectively nothing more than a portfolio combination of the target and acquirer. The disparity suggests that, at least for the first 18Â months after the transaction becomes effective, market participants expect mergers to increase risk. Integration risk and uncertainty about the extent to which efficiency gains and greater market power are realized are possible explanations for the discrepancy.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057-5219(06)00045-7
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:17:y:2008:i:2:p:330-344

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().