Intervalling-effect bias and evidences for competition policy

Fotis, Panagiotis and Pekka, Victoria and Polemis, Michael (2015): Intervalling-effect bias and evidences for competition policy.

Abstract

The purpose of this paper is on the one hand to analyze whether the security’s systematic risk beta estimates change as the infrequent trading phenomenon appears and on the other hand to provide useful insight on the impact of mergers and acquisitions on competition policy. The paper employs the models of Scholes and Williams (1977), Dimson (1979), Cohen et al. (1983a) and Maynes and Rumsey (1993) on a small stock exchange with thickly infrequent trading stocks. The empirical results reveal that for some securities the models employed by Scholes and Williams (1977) and Cohen et al. (1983a) improve the biasness of the Ordinary Least Squares Market Model (Maynes and Rumsey, 1993). Regarding competition policy issues, we argue that competitors gain while merged entities loose or at least do not gain from the clearness of the mergers under scrutiny. However, if we focus our attention on each individual merger, the results are rather controversial.

• Item Type: MPRA Paper
• Language: English
• Keywords: Intervalling-effect bias, Beta risk measurement, infrequent trading phenomenon, mergers and acquisiti¬ons, com¬pe¬¬¬tition po¬licy
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; K - Law and Economics > K0 - General

References

Armitage Seth and Janusz Brzeszczynski. 2011. “Heteroscedasticity and Interval Effects in Estimating Beta: UK Evidence.” Applied Financial Economics 21(20):1525-1538.

Aktas, Nihat, Eric de Bodt and Richard Roll. 2007. “European M&A Regulation is Protectionist.” The Economic Journal 117:1096–1121.

Al-Sharkas, Adel A and Kabir M Hassan. 2010. “New Evidence on Shareholder Wealth Effects in Bank Mergers during 1980-2000.” Journal of Economics and Finance 34(3):326-348.

Barthodly, Jan, Dennis Olson and Paula Peare. 2007. “Conducting Event Studies on a Small Stock Exchange.” The European Journal of Finance 13(3):227-252.

Bharba Gurmeet Singh. 2008. “Potential Targets: An Analysis of Stock Price Reaction to Acquisition Program Announcements.” Journal of Economics and Finance 2(2):158-175.

Cohen, J Kalman, Gabriel A Hawawini, Steven F Maier, Robert A Schwartz, and David K Whitcomb. 1983b. “Estimating and Adjusting for the Intervalling- Effect Bias in Beta.” Managerial Science 29:135- 148.

Cohen, J Kalman, Gabriel A Hawawini, Steven F Maier, Robert A Schwartz, and David K Whitcomb. 1983a. “Friction in the Trading Process and the Estimation of Systematic Risk.” Journal of Economics and Finance 12:263- 278.

Cox, J Alan. and Jonathan Portes. 1998. “Mergers in Regulated Industries: The Uses and Abuses of Event Studies.” Journal of Regulation and Economics 14:281-285.

Daves, R Phillip, Michael C Ehrhardt, and Robert A Kunkel. 2000. “Estimating Systematic Risk: The Choice of Return Iinterval and Estimation Period.” Journal of Financial and Strategic Decisions 13:7-13.

Davidson Sinclair and Thomas Josev. 2005. “The Impact of Thin Trading Adjustments on Australian Beta Estimates.” Accounting Research Journal 18(2):111 – 117.

Diacogiannis George and Paraskevi Makri. 2008. “Estimating Betas in Thinner Markets: The Case of the Athens Stock Exchange.” International Research Journal of Finance and Economics 13:108-122.

Dimson Elroy. 1979. “Risk Measurement when Shares are Subject to Infrequent Trading.” Journal of Financial Economics 7:197-226.

Duso, Tomaso, Damien J Neven and Lars-Hendrik Röller. 2007. “The Political Economy of European Merger Control: Evidence Using Stock Market Data.” Journal of Law and Economics 50(3):455-489.

Duso, Tomaso, Klaus Gugler and Burcin Yurtoglou. 2010. “Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data.” International Review of Law and Economics 30:186-192.

Fama F Eugene. 1970. “The Behavior of Stock Market Prices.” Journal of Business 38:34-105.

Fama F Eugene and Kenneth R French. 1993. “Common risk factors in the returns on stocks and bonds.” Journal of Financial Economics 33:3-56.

Fotis, Panagiotis. 2012. “Competition Policy & Firm’s Damages.” pp. 116-139 in Recent Advances in the Analysis of Competition Policy and Regulation, edited by Y. Katsulakos and J. E. Harrington, London UK.

Fotis Panagiotis. 2014. “Economic Tools for Merger Appraisal: A Theoretical and Empirical Standpoint.” Journal of Reviews on Global Economics 3:24-32.

Fotis Panagiotis and Michael Polemis. 2011. “The Use of Economic Tools in Merger Assessment.” European Competition Journal 7(2):323-347.

Fotis Panagiotis and Michael Polemis. 2012a. “The Short – Run Competitive Effects of Merger Enforcement.” European Competition Journal 8(1):183-210.

Fotis, Panagiotis, Michael Polemis and Nikolaos Zevgolis. 2011. “Robust Event Studies for Derogation from Suspension of Concentrations in Greece During the Period 1995-2008.” Journal of Industry Competition and Trade 11(1):67-89.

Fowler, J David and Harvey C Rorke. 1983. “Risk Measurement when Shares are Subject to Infrequent Trading: Comment.” Journal of Financial Economics 12:279- 283.

Gleason, Kimberly, Anita Pennathur and Joan Wiggenhorn. 2014. “Acquisitions of Family Owned Firms: Boon or Bust?.” Journal of Economics and Finance 38(2):269-286.

Ho Li-Chin Jennifer and Jeffrey J Tsay. 2001. “Option trading and the intervaling effect bias in beta.” Review of Quantitative Finance and Accounting 17:267-282.

Hong KiHoon Jimmy and Steve Satchell. 2014. “The sensitivity of beta to the time horizon when log prices follow an Ornstein–Uhlenbeck process.” The European Journal of Finance 20(3):264-290.

Jiang Fei and Lawrence A Leger. 2010. “The Impact on Performance of IPO Allocation Reform: An Event Study of Shanghai Stock Exchange A-shares.” Journal of Financial Economic Policy 2(3):251 – 272.

Levhari David and Haim Levy. 1977. “The Capital Asset Pricing Model and the Investment Horizon.” The Review of Economics and Statistics 59(1):92-104.

Maynes Elizabeth and John Rumsey. 1993. “Conducting Event Studies with Thinly Traded Stocks.” Journal of Banking and Finance 17:145-157.

Milonas Nikolaos and Gerasimos Rompotis. 2013. “Does Intervalling Effect Affect ETFs?.” Managerial Finance 39(9):863-882.

Mueller C Dennis 1980. “The Determinants and Effects of Mergers: An International Comparison.” Cambridge, MA, Oelgeschlager, Gunn & Hain.

Rahim Nurhazrina Mat and Wee Ching Pok. 2013. “Shareholder Wealth Effects of M&As: the third wave from Malaysia.” International Journal of Managerial Finance 9(1):49-69.

Scholes Myron and Joseph Williams. 1977. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics 5:309-328.

Sercu, Piet, Martina L Vanderbroek and Tom Vinaimont. 2008. “Thin-trading Effects in Beta: Bias v. Estimation Error.” Journal of Business Finance & Accounting 35(9):1196-1219.

Vazakides Athanasios. 2006. “Testing Simple Versus Dimson Market Models: The Case of the Athens Stock Exchange.” International Research Journal of Finance and Economics 2:26-34.

Wang Peijie and Trefor Jones. 2005. “A Different Approach to Estimating Betas of Securities Subject to Thin Trading and Serial Correlation.” Applied Financial Economics 15(16):1145-1152.