The Behavior of Option Implied Standard Deviations around Merger and Acquisition Announcements

Haim Levy and James A Yoder

The Financial Review, 1993, vol. 28, issue 2, 261-72

Abstract: This paper examines the behavior of option implied standard deviations around merger and acquisition announcements. The implied standard deviations of target firms increase significantly three days prior to the announcement. The bidding firm implied standard deviations are not affected. The analysis is extended to the equity market to determine which market reacts first to the merger or acquisition announcement. Target firm equity abnormal returns and residual variances increase significantly one and two days, respectively, prior to the announcement. Copyright 1993 by MIT Press.

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:28:y:1993:i:2:p:261-72

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