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Realized volatility in Microsoft corporate finance activity

Realized volatility in Microsoft corporate finance activity. Sean Puneky March 25 th , 2009. Work So Far. Throughout the seminar, I have focused on drivers of Realized Volatility

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Realized volatility in Microsoft corporate finance activity

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  1. Realized volatility in Microsoft corporate finance activity Sean Puneky March 25th, 2009

  2. Work So Far • Throughout the seminar, I have focused on drivers of Realized Volatility • Last time, I presented and OLS regression of Microsoft’s RV in excess of the market on Microsoft’s acquisition history • Since then, I have read more on the HAR-RV model and expanded my study to other potential drivers of Realized Volatility

  3. Quick Review of Created Index • I created a 27 stock equally weighted portfolio, containing 3 stocks from each of the nine sectors of the economy • Correlation of my index w/ S&P 100: .7995 • Regression of S&P 100 onto my index yields a coefficient of 1.036

  4. Returns of S&P 100 and Index

  5. Scatterplot: Index vs. S&P 100

  6. My Initial Hypothesis • As new Data is released to the market either in the form of a company’s announced acquisition or divestiture, the market must find a new value for the company’s stock • During this period of uncertainty, realized volatility for the stock will increase as market actors attempt to determine the new value of the stock

  7. Methods • I’ve run several different regressions testing different binary variables • All of the regressions have the parts below in common • Independent Variable: RVt (RV on a day) • Dependent Variables: • MSFT HAR-RV regressors • Index HAR-RV regressors

  8. Methods (continued) • I divided M&A activity into three categories: acquisitions, stakes, and divestitures • Acquisitions and stakes combine to create a purchases category • Activity occurring on non-trading days was treated as having occurred on the first succeeding trading-day • After the first regression, I will no longer show results from the HAR-RV regressors, but these regressors were included in all of the regressions

  9. Results: All Categories

  10. Results: Purchases

  11. Results: Activity

  12. A New Consideration: Value • Because my previous results were not significant, I decided to add value of deal as a regressor • Unfortunately, the value of only 44.4% of Microsoft’s deals are publicly available • I was forced to remove from the sample set any day containing a deal that I did not have a value for because having a value of zero would have falsely indicated that no deal was present • For days with more than one deal, the value of both deals were summed together (a divestiture never occurred on the same day as a purchase)

  13. Results: Value

  14. Results: Value & Type

  15. Conclusions • M&A activity has no significant effect on Realized Volatility • It seems likely that the market is efficient to the point that when new M&A information is released, the stock price corrects itself smoothly with little flucuations

  16. Extensions • Examine more stocks in different industries (tech is nice though, because of the numerous acquisitions at the end of the ‘90s) • It’s possible that M&A activity is having an effect on the jump portion of RV. I should look into jump testing.

  17. Appendix • 2919 days in data set • 162 days w/ M&A activity • 72 days where Value of activity is available

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