Testing the mixture of distributions hypothesis on target stocks

Rachael Carroll and Colm Kearney

Journal of International Financial Markets, Institutions and Money, 2015, vol. 39, issue C, 1-14

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.

Keywords: GARCH models; Takeovers; Target stocks; Volume and volatility (search for similar items in EconPapers)
JEL-codes: C12 C32 C58 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:39:y:2015:i:c:p:1-14

DOI: 10.1016/j.intfin.2015.05.003

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