Mergers and Acquisitions and Market Volatility of Brazilian Banking Stocks: An Application of GARCH Models

• Published in: Latin American business review (Binghamton, N.Y.) Vol. 17; no. 4; pp. 333 - 357
• Main Authors: Pessanha, Gabriel Rodrigo Gomes, Bruhn, Nádia Campos Pereira, Calegario, Cristina Lelis Leal, Sáfadi, Thelma, Ázara, Leiziane Neves de
• Format: Journal Article
• Language: English
• Published: Abingdon Routledge 01.10.2016; Taylor & Francis Ltd
• Subjects: Acquisitions & mergers; Bank acquisitions & mergers; Bank stocks; Banking; GARCH class models; M&As announcements; Stochastic models; Stock exchanges; stock market returns; Volatility; Brazil
• ISSN: 1097-8526; 1528-6932
• DOI: 10.1080/10978526.2016.1232596

The main objective of this research was to investigate the impacts caused by announcements of mergers and acquisitions (M&As) on the volatility of the returns of Brazilian bank stocks from 1994 to 2015. In order to achieve the proposed objective, this study applied Generalized Autoregressive Conditional Heteroscedastic (GARCH) class models to the series to model their volatility. Our results confirmed the impact of the announcement of M&As on volatility. They suggest that M&A announcements are expected to cause a negative reaction if related to an expansion or a deal involving a less-well known bank, and a positive reaction if it involves well-known bank with good reputation-a higher level of confidence and a lower level of information asymmetry for investors.