Online from: 1975
Subject Area: Accounting and Finance
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|Title:||Stock exchange consolidation and return volatility|
|Author(s):||Faten Ben Slimane, (Department of Finance, Groupe ESC Troyes, Troyes, France)|
|Citation:||Faten Ben Slimane, (2012) "Stock exchange consolidation and return volatility", Managerial Finance, Vol. 38 Iss: 6, pp.606 - 627|
|Keywords:||Acquisitions and mergers, Financial risk, Mergers, Stock exchanges, Volatility|
|Article type:||Research paper|
|DOI:||10.1108/03074351211226256 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||JEL classification – F36, G15, G32. The author would like to express special thanks to Ulf Nielsson, Christophe Hurlin, Don Johnson (editor) and anonymous referees for valuable comments and suggestions. The author also benefited from useful comments from participants at the 2011 Financial Management Association European Conference on earlier version of the paper. All remaining errors are, of course, the author's sole responsibility.|
Purpose – In recent years, stock exchanges have been increasingly integrating and merging their activities at a national and international scale. While consolidation is often driven by technological, legal and competitive changes, whether merger activities are efficient in terms of market microstructure remains unknown. Academic research to date has analyzed the causes behind these mergers primarily from the technological, legal and competitive perspective, whereas relatively little literature considers their impact on the exchange itself. The paper aims to consider the case of the Euronext merger to explain this topic by studying this merger and its effect on Euronext's market risk (measured by volatility).
Design/methodology/approach – The paper uses a standard General Auto-regressive Conditional Heteroskedasticity (GARCH (1,1)) process to study the volatility of the underlying markets and use break methodology to highlight the merger effects. It also adds control samples to account for any change in volatility that could be caused by factors other than the merger event.
Findings – The results suggest that the Euronext merger did not affect the market risk. In particular, the paper finds no evidence that the integration onto the same platforms for trading and clearing had a significant effect on the volatility of the merging markets.
Practical implications – This study contributes to clarify business issues and to guide policy makers on exchange industrial organization.
Originality/value – The present paper further contributes to the ongoing discussion about the drawbacks and merits of horizontal exchange integration.
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