Abstract
This study examines the announcement effect of 1443 UK M&AS under both the conventional OLS and the asymmetric GJR-GARCH specification over a window of 1996-2009. Conventional market model as a benchmark to examine the portfolio returns in response to M&A announcement is widely used in financial econometric literature. The asymmetric GJR-GARCH model captures the time-varying volatility more effectively contrary to the traditional OLS method. The findings suggest that the difference of estimation procedure largely influences the results. The GJR-GARCH specification performs better in capturing event induced returns compared to the OLS estimation. The study is supplemented by examining explanatory characteristics of the GJR-GARCH generated portfolio returns employing a cross-sectional analysis. The cross-sectional study indicates a significant association between the deal value, bid premium and relative size with portfolio returns.
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