Evidence on changes in time varying volatility around bonus and rights issue announcements

Madhuri Malhotra (), M. Thenmozhi and G. Arun Kumar

International Journal of Emerging Markets, 2013, vol. 8, issue 2, 129-143

Abstract: Purpose - The purpose of this paper is to examine the short‐term and long‐term stock price volatility changes around bonus and rights issue announcements, using historical volatility estimation and time varying volatility approach. Design/methodology/approach - Changes in volatility around bonus and rights issues have been examined using the following methodologies. First, to capture historical volatility, change in standard deviation for 20 days and 100 days before and after announcement have been examined. Second, change in time varying volatility and unconditional volatility is examined using GARCH (1, 1) model. Findings - The results indicate that the historical volatility has increased after bonus and rights issue announcement. The volatility persistence and unconditional variance have increased after the bonus and rights issue announcements. This evidence, extendable to any other type of issue announcement, is consistent with theories stating that volatility increases after the seasoned capital issue announcements. Originality/value - This study analyses historical volatility, volatility persistence and unconditional volatility around bonus and rights issue announcements, which has not been observed in the previous literature. This study fills the gap in literature by empirically examining the change in short‐ and long‐term volatility before and after bonus and rights issue announcements. Moreover, measuring volatility using GARCH model overcomes the potential problem of heteroscedasticity associated with cross‐sectional data. The change in volatility persistence and unconditional volatility before and after the announcement are also examined. This study is useful for researchers and practitioners specialized in finance, international business and management, and professionals in the area of commercial policy development in emerging markets.

Keywords: India; Stock markets; Capital markets; Bonus issue; Rights Issue; Volatility; ARCH; GARCH; Indian stock market (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Evidence on Changes in Time Varying Volatility around Bonus and Rights Issue Announcements (2012)
Working Paper: Evidence on Changes in Time Varying Volatility around Bonus and Rights Issue Announcements (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:17468801311307000

DOI: 10.1108/17468801311307000

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