Stock Price Volatility Estimators in Merger Announcement ?An Empirical Analysis

ABSTRACT The purpose of this study is to estimate the stock price volatility with respect to merger announcement using an event study methodology. Merger announcements do not significantly alter the trading liquidity and pricing efficiency of the sample stocks. However, return volatility does decline on post event basis. It is also observed that while stock financed mergers are value creating, cash financed mergers seem to be value destroying in the short run. Specifically, this study analyzed the effects of service and manufacturing industries in mergers announcements the stock price volatility in India. Volatility as a measure of risk plays an important role in many financial decisions in such a situations. The main purpose of this study is to examine the volatility of the merger announcement period and its related stylized facts using Garman and Klass estimators.