Jorg Bley

Intra-industry and inter-country effects of European mergers

We empirically test the valuation effects of European M&A announcements on rivals within the targets country (intra-industry effects) and on other European rivals (inter-country effects), for the period of 1996 to 1999. We find evidence of inter-country effects that has not previously been documented, suggesting that the ongoin integration of European economies, supported by the introduction of the euro, facilitates the transmission of private information across country boundaries in Europe. We also conduct a cross-sectional analysis to isolate potential sources of intra-industry and inter-country effects. *** DIRECT SUPPORT *** A00DH017 00007

Idiosyncratic Volatility Forecasting in the Stock Market of Saudi Arabia

ABSTRACT We test the forecasting ability of two sets of models, one containing historical volatility–based models and the other conditional volatility–based models, on estimates of idiosyncratic risk of individual Saudi Arabian stocks. While the rankings of forecasts are sensitive to the choice of error statistics, historical volatility–based models appear to be superior, unless the model employed to generate the underlying idiosyncratic return series incorporates higher moments. Exponential smoothing models, with a seasonal component in particular, display superior forecasting performance regardless of whether the idiosyncratic volatility estimates are generated at the local (Saudi Arabian) level or the regional (Gulf Cooperation Council [GCC]) level. The results are of particular interest to investors that are not mean variance optimizers.