1. REALIZED VOLATILITY AND ACQUISITIONS Sean Puneky 25 February 2009

2. A New Focus  I’ve decided to focus more on acquisition analysis as narrowing down which dates to study for an ad campaign involves too much guesswork  Have been reading papers on event study methodology

3. What I’ve been reading  Event-study methodology under conditions of event- induced variance (Boehmer, Musumeci, Poulsen, 1991)  Volatility Clustering and Event-induced Volatility: Evidence from UK M&A (Balaban, Constantinou, 2006)  Divergence of Opinion and Post-Acquisition Performance (Alexandridis, Antoniou, Petmezas, 2007)

4. Theory  Announcement of a merger should have a significant effect on the Realized Volatility of a stock  Realized Volatility might be effected differently if the merger is announced over the weekend vs. during the week vs. during the trading day

5. The Puneky Index®  Complied from twenty-seven stocks in the S&P 100, three stocks from each sector of the economy  Attempted to choose the three stocks in each sector from three different industries but that wasn’t always possible  Available data runs from: April 4 th, 1997 through December 31 st, 2008

6. The Puneky Index® Basic MaterialsALCOAExxon MobilDow Chemical ConglomeratesGeneral Electric3MUnited Technologies Consumer GoodsP&GFord MotorsCoca-Cola FinancialAmerican ExpressJPMWells Fargo HealthcareJ&JMedtronicAmgen Industrial GoodsCaterpillarBoeingHoneywell ServicesWalt DisneyFedExWal-Mart Stores TechnologyIBMAT&TMicrosoft UtilitiesSouthern CompanyExelonEntergy

7. Returns: The Puneky Index®

8. S&P 500 Returns

9. Pindex: Annualized RV (8min)

10. Statistical Comparison: Pindex and S&P500 StatisticPindexS&P 500 Mean of Returns -7.7415e-005-5.4615e-005 Volatility of Returns0.010450.01327 Conclusion: The Pindex is a somewhat valid proxy for the S&P500

11. Microsoft Analysis  Test whether or not announcement of acquisitions by Microsoft in the year 2007 had a significant impact on realized volatility  Methodology: Regress “MSFT log(RV) – Index log(RV)” on binary variable containing whether or not an acquisition was announced on that day

12. Data  Of 247 total observations, the binary variable was “True” only 12 times  Acquisitions range in size from small software makers to multi-billion dollar deals  All acquisitions, no matter the scope, were treated the same

13. STATA Regression regress diff binary Source | SS df MS Number of obs = 247 -------------+------------------------------ F( 1, 245) = 0.02 Model |.009389691 1.009389691 Prob > F = 0.8827 Residual | 105.38513 245.430143388 R-squared = 0.0001 -------------+------------------------------ Adj R-squared = -0.0040 Total | 105.39452 246.428433007 Root MSE =.65585 ------------------------------------------------------------------------------ diff | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- binary |.028678.1941022 0.15 0.883 -.353644.411 _cons | 3.169239.0427831 74.08 0.000 3.084969 3.253508

14. Conclusions  The binary variable is clearly not significant  Many sources of error here  In future, I will attempt to use either only large or only small acquisitions or add a variable for acquisition size  I also want to extend study to other stocks or time periods

15. Extensions  Need to research more common methodologies for this type of study  Expand to other equities, and perhaps bring in returns