This paper proposes an extended market model for event studies based on daily stock returns. For actual data the assumptions of the simple market model are violated. The return distribution is not normal and neither the variance of the error term nor the risk parameter beta are constant. Our model incorporates the generalized autoregressive conditional heteroskedasticity (garch) model with t-distributed errors and a time-dependent beta. We test for anomalies by adding dummy variables in the regression equation. Our model is fairly general and could be used in a wide variety of event study situations. We illustrate the model by an analysis of the weekend and the option-expiration effect. We use return data from the Dutch stock market. The weekend effect on stock returns is significant, but no expiration effect could be detected.

This paper shows that share issue privatization (SIP) is a major source of domestic stock market liquidity in 19 developed economies. Particularly, privatization IPOs have a negative effect on the price impact – measured by the ratio of the absolute return on the market index to turnover. This result is robust to the inclusion of controls for other observable and unobservable factors, having also considered the endogenous nature of the decision to privatize. We also provide evidence of a positive spillover of SIP on the liquidity of private companies. This cross-asset externality is one implication of liquidity theories emphasizing the improved risk diversification opportunities and risk sharing brought about by privatization. This externality stems from both domestic privatization IPOs and cross-listings.

Earlier research has shown that euro-area primary public debt markets affect secondary markets. We find that more successful auctions of euro area public debt, as captured by higher bid-to-cover ratios, lead to lower secondary-market yields following the auctions. This effect is stronger when market volatility is higher. We rationalize both findings using a simple theoretical model of primary dealer behavior, in which the primary dealers receive a signal about the value of the asset auctioned.