Market Response to European Commission's Merger Decisions

Abstract

The aim of this paper is to show whether there are sizeable market reactions to decisions by the European Commission on proposed business combinations. To this end, I present a model on market reactions to decisions within the scope of the Merger Regulation, asserting that information arrival has a non-negligible impact on both stock returns and market volatility. This conjecture is challenged by empirical stock market data on individual firms' stock returns preceding and following different decisions by DG competition.<br /><br /><br />Using an event study approach, I can show that as far as stock returns are concerned there is a clear impact of certain types of decisions on financial markets. Further, the application of exponential generalized autoregressive conditional heteroskedasicity (EGARCH) models reveals volatility reactions to uncertain decisions; the effect of anticipation on event induced volatility, however, being less distinct than level reactions.