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

Haim Levy*, James A. Yoder

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

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.

Original languageEnglish
Pages (from-to)261-272
Number of pages12
JournalFinancial Review
Volume28
Issue number2
DOIs
StatePublished - May 1993

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