Announcement Day Research Articles

The Addition of New Payment Method and Shareholder Value: Evidence From Cryptocurrency Adoption

ABSTRACT Despite the growing adoption of cryptocurrencies as a payment method, the literature lacks a comprehensive exploration of its performance outcome. To address this gap, authors examine the impact of firms’ adoption of cryptocurrencies as a payment method on shareholder value. Employing event study methodology, authors analyze the effect of cryptocurrency adoption announcements made by 27 U.S. firms between 2013 and 2020 on shareholder value. The results indicate that cryptocurrency adoption leads to positive abnormal returns, with an average of 0.65% on the announcement day. Further analysis reveals that firms’ advertising intensity amplifies the positive impact of cryptocurrency adoption on shareholder value. Additionally, non-retail firms tend to receive greater benefits from cryptocurrency adoption compared to retail firms.

ABNORMAL ANALYSIS OF RETURN AND TRADING VOLUME ACTIVITY DURING THE COVID-19 PANDEMIC

This study aims to determine investor reactions from announcements given by the Government of Indonesia regarding the COVID-19 pandemic. In this study, investors' reactions were seen from whether there were abnormal differences in return and trading volume activity before and after the announcement. The announcements used in this study were the announcement of the first COVID-19 patient in Indonesia, the announcement of the PSBB and the announcement of the new normal. The sample used was 45 shares of companies listed in LQ45 on the IDX. The window period used in this study is 15 days, which is 7 days before the announcement, 1 day of announcement and 7 days after the announcement. The data analysis technique used is the paired sample t-test. The test results of this study show that there is investor reaction, judging from the abnormal return around the announcement of the first COVID-19 patient in Indonesia, the announcement of the PSBB and the announcement of the new normal. Hypothesis testing shows that there are abnormal differences in return and trading volume activity before and after the announcement of the new normal. Meanwhile, there were different results in abnormal return testing and trading volume activity before and after the announcement of the first COVID-19 patient and the announcement of the PSBB, which showed no significant difference.

Retail attention on earnings announcement days: Evidence from social media

We develop a novel direct measure of abnormal retail attention using tweet frequency on StockTwits. Contrary to prior evidence, our results show that firm-level abnormal retail attention is only slightly diminished by market-level abnormal retail attention.More importantly, we find that firm-level abnormal retail attention enhances the immediate incorporation of earnings information in share prices and alleviates post earnings announcement drift. Unlike prior studies that usually consider retail investors uninformed and play no role in price discovery, our results suggest that the proliferation of inexpensive techniques for information gathering nowadays makes the role played by retail investors in capital markets increasingly important.

Asymmetric Impact of Russia–Ukraine War on Global Stock Markets

Russia’s invasion of Ukraine on February 24, 2022, emerged as Europe’s most significant military conflict post second world war, with global economic and geopolitical consequences. Using a broad (95-country) sample, the study examines the impact of the Russia–Ukraine war on global stock markets surrounding the war announcement. It applied the event study method and used short and long event windows to examine the war’s immediate and intermediate impacts. Global stock markets delivered negative 1.90% abnormal returns on the day of the war announcement, and Russia saw the biggest fall. However, after the initial adverse reaction, stock markets reacted asymmetrically. Stock markets of the countries in geographic proximity and high trade intensity with Russia and Ukraine, and net importers of energy and food grains negatively reacted more than the rest. The regional results show that Asia Pacific and Europe reported negative returns across event windows. In contrast, the Americas, Africa, and the Middle East did not react negatively, even in the shortest event window. Adverse war reactions moderated over time. Equity investors and portfolio managers who aim to protect their investments should buy stocks in countries that are net exporters of commodities made in war-torn countries and switch to stock markets geographically far from the war zone.

Examining Indonesian Stock Price Movement Amid COVID-19 Pandemic: Which Sectors that Underperformed the Most?

AbstractThe stock market is a financial market that is highly responsive to changes in economic conditions. Therefore, the stock market normally reflects the current economic conditions. This study discusses the effect of the COVID-19 pandemic on the Indonesian stock exchange in several industrial sectors. Using the event study method, this study utilized a time-series data over a five-month period starting from December 2019 to April 2020. To examine the short-run and long-run impact among the observed variables, this study also applied the ARDL (Autoregressive Distributed Lag). The findings showed that the COVID-19 pandemic affected stock performance, particularly in trade, service and investments, and agricultural sectors, all of which experienced a negative return on the day of the first announcement of the COVID-19 positive cases. In addition, the outbreak evidently influenced the cumulative abnormal return in the short run, but not in the long run. Keywords:Stock Market, COVID-19 pandemic, Event Study, ADRL, Cumulative Abnormal Return

The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022

PurposeThis paper aims to analyze stock market reactions to announcements of regulatory and law enforcement penalties imposed on banks operating in the USA.Design/methodology/approachThis paper examines abnormal stock market returns around penalty announcements for banks operating in the USA from 2000 to 2022. The authors use a comprehensive data set of nearly 600 penalties to conduct their event study.FindingsThis paper finds evidence of positive and statistically significant abnormal returns on the day of the penalty announcement. However, the authors also observe negative and statistically significant abnormal returns days later, violating the semi-strong efficient market hypothesis.Originality/valueBy accounting for confounding events and analyzing subsamples, the authors reconcile conflicting results from prior literature that have variously shown negative, null or positive stock market reactions to penalty announcements.

Factor returns and FOMC announcements: The role of sentiment

We examine the dynamics of long-short factor returns on FOMC announcement days and the role of sentiment. We find that factor returns are negative on FOMC announcement days. Moreover, on these days returns are significantly lower following low sentiment periods. Hence, investor sentiment is a key driver of factor returns on FOMC days and this effect emanates mainly from the short portfolio leg of each factor.

A Horizon‐Based Decomposition of Mutual Fund Value Added Using Transactions

ABSTRACTWe decompose mutual fund value added by the length of funds' holdings using transaction‐level data. We motivate our decomposition with a model featuring horizon‐specific investment ideas, where short‐term ideas are less scalable because the associated trades cannot be spread over time. Fund turnover correlates negatively with the horizon over which value is added and positively with price impact costs. As predicted, holdings of high‐turnover funds add a substantial amount of value in the first two weeks, of which more than 80% is earned on Federal Open Market Committee (FOMC) and earnings announcement days. Holdings of low‐turnover funds add value only over longer horizons.

Institutional attention and investment efficiency

AbstractThis study investigates how institutional investors' attention on the earnings announcement day affects corporate investment decisions. I find that the investment of firms receiving abnormal institutional attention is approximately 1.8 times more sensitive to their stock price than that of others. This effect is more pronounced when institutional investors have greater incentives to produce information and when corporate managers have greater incentives and capability to employ the incremental information contained in the stock price. These findings suggest that attention encourages institutional investors to incorporate private information into stock prices, which provides a useful guide for managers' investment decisions.

Firm-Level Uncertainty and the Transmission of Monetary Policy

Abstract We show that firms which face higher uncertainty adjust their investment less in response to monetary policy shocks. We find corroborating evidence of this differential effect from firm-level stock returns on FOMC announcement days. Our results are consistent with a real options (or “wait-and-see”) channel whereby higher uncertainty dampens the response to changes in business conditions. Consistent with this mechanism the dampening effect is stronger for firms that face higher reversibility costs of investment.

Equity Return Predictability with the ICAPM

Abstract This paper highlights a positive and significant beta-return relationship in high expected market return states, as suggested by the ICAPM. The ICAPM has strong out-of-sample predictive power for equity returns. As a result, timing strategies exploiting this predictive power have Sharpe ratios about double those of the buy-and-hold strategies, alphas of about 5% per annum, and average returns increasing sharply with unconditional betas. Our findings relate to the positive beta-return relation uncovered overnight, on macroeconomic announcement days, and in low inflation times because these periods share an important common feature: high market returns. (JEL D53, G11, G12)

Are private placements associated with more active media management than public offerings? Evidence from Taiwan

PurposeThis study investigates the media activities of firms issuing private equity placements and seasoned equity offerings in Taiwan, as firms have incentives to manage media coverage to influence their stock prices during private equity placement.Design/methodology/approachWe collect a corpus of news stories and transform the news into term sets based on the part of speech. Then, we refer to Cecchini et al. (2010) to classify the news terms into positive, negative, and usual categories. Next, we employ the SVM algorithm to perform the classification tasks and the term frequency method to perform the text mining task. In last, we use a multiple regression model to verify the hypotheses.FindingsWe determine that issuing firms in a private placement have substantially more positive news stories and fewer negative news stories than those in public offerings. Furthermore, we evidence that the media management effects of postequity issues are more active than those of preequity issues. Finally, our results demonstrate that the timing and content of financial media coverage among different equity issuance methods may be biased by firm management. According to previous studies, they may attempt to manipulate stock prices to increase the number of highly profitable insider stakeholders.Originality/valueTo our knowledge, this is the first study to investigate that if private placement will associate with more active media management than the public offerings. According to our results of the difference-in-means test, the public offerings market may control news coverage; however, this result is inconsistent with that of the regression results. The private placements market may also exercise media management in the “before announcement day” and “after announcement day” periods by increasing positive news and reducing negative news.

Monetary momentum and risk management in stock market

Purpose- This study aims to investigate the relationship between monetary interest rate decisions, liquidity mechanisms and risk management issues. As a core interest the significance of a structural change in the data around the FOMC meetings is analyzed. By the help of continuous time models we analyze the kind of dynamics, which can be observed in the stock returns, i.e. conditional volatilities and jumps. A further central interest is given to investment decisions and risk management issues. This encompasses the elaboration of the hedging strategies to achieve higher performance. Methodology- The study employs GARCH-Ito and GARCH-Ito-Jump models to analyze the stock market returns and their related volatilities on the day of a FED interest decision announcement. The continuous time GARCH model setting allows to model stock market returns with a high flexibility, therefore these models are abled to capture jump dynamics in the stock returns. Findings- The analysis reveals that persistence in conditional volatilities change according to alternative stocks. These stocks can be classified according to alternative market capitalization sizes. Mega market capitalization stocks are better governed by no jump GARCH-Ito models regardless the monetary policy changes, that is, changes in interest rates or not. Conclusion- Based upon the analysis, it may be concluded that risk management applications effectively might perform under the consideration of stock types in terms of market sizes. The persistence in the conditional volatility massively decreases if a jump component is introduced into the model. Since most of the mega market cap stocks perform better without a jump part component, it might be conjectured that persistence in the conditional volatility for mega cap stocks play a more important role compared to large cap stocks. Regardless the case whether there is an interest rate change or not, the persistence in conditional volatility remains in mega cap stocks, and thus, these stocks are prone to the involvement of prices jumps. Keywords: Monetary policy, risk management, jump detection, investment decisions JEL Codes: C22, E49, G11

Reakcije ulagača na objave tromjesečne dobiti na Zagrebačkoj burzi

This study investigates the investors’ reactions to the publication ofquarterly earnings for companies at the Zagreb Stock Exchange. The empiricalresearch based on the event study and 409 firm-year observationsconfirms that investors react to the publication of quarterly earnings, whilethe Friedman test indicates that the reactions are most frequent for earningsannouncements from the second quarter (Q2). The occurrence of abnormalstandardized returns on announcement day suggests that the efficient markethypothesis in semi-strong form does not hold for the Croatian capital market.Moreover, there is evidence of gradual price adjustment after announcementday. Longitudinal analysis in the period 2010-2022 indicated that investors’reactions are stable and that there is no trend of growth or decline in standardizedabnormal returns. The estimated pool regression model revealedthat several firm characteristics influence the information content of quarterly earnings. The earnings surprise variable positively affects standardizedabnormal returns, while firm size and reporting of losses variables negativelyaffect standardized abnormal returns. The results of the study confirm tocapital market regulators the practical benefits of quarterly financial reporting,to firms that they can use quarterly financial reports to reduce informationasymmetry and to investors that after the quarterly earnings publicationthere is the possibility of achieving abnormal returns. The limitation of thisstudy is relatively small sample in comparison with similar studies. Findingsabout slow price adjustment after the day of earnings release might be challengedby the occurrence of other price-sensitive information. Some futureresearch might improve findings by use of additional independent variables,like management analysis and analyst forecast, which could shed new lighton the quarterly earnings information content at ZSE.

투자자의 정보공유활동에 따른 애널리스트 이익예측과 주가수익률 간의 관련성

[Purpose] In this study, we examine whether stock price reactions on analyst report announcement days are differentiated by the level of activation of NAVER stock discussion boards, and by the sharing of accounting information in the discussion boards.
 [Methodology] For the analysis, we collected posts from NAVER stock threads and categorized posts containing accounting terms as accounting information posts. The stock price reaction on the announcement day of an analyst report was measured by the excess return on the announcement day.
 [Findings] The results show that the number of posts in NAVER stock threads is positively related to stock returns on analyst report announcement days. This provides evidence that information in analyst reports is quickly reflected in stock prices in the case of stocks where information sharing and diffusion among individual investors is active on the Internet. We also find that the number of posts containing accounting information in stock discussion boards is positively related to stock returns on the day of the analyst report. This provides evidence that value－ relevant accounting information triggers investment decisions by confirming or changing individual investors’ stock valuations.
 [Implications] This study provides evidence of the complementary role of information sharing and confidence among retail investors in analysts’ information by examining stock reactions on analyst report release dates. In particular, we provide evidence that the transmission and sharing of accounting information among retail investors on the Internet facilitates the incorporation of information into stock prices.

Macroeconomic Announcements: How Announcements Shape Trading Strategies

The Capital Asset Pricing Model (CAPM) is a widely used and tractable model relating financial risk and return. However, it has been less successful when taken to the data. In their seminal paper, Frazzini and Pedersen propose a Betting Against Beta (BAB) factor to take advantage of this fact. In their construction, the BAB factor is a portfolio which longs low-beta stocks and shorts high-beta stocks. Since its construction, the BAB factor has been widely cited and used both in financial academics and in industry. This paper proposes a novel betting on and against beta (BOAB) strategy, which bets on beta on days with macroeconomic announcements and bets against beta on days without. Here, macroeconomic announcement days are defined as days when inflation, unemployment, or interest rate decisions are released. Our findings confirm the persistent positive beta-return relationship observed on macroeconomic announcement days. We show that compared to the BAB strategy, BOAB delivers higher average daily excess returns over the time period 1964 to 2021 when applied to the U.S. stock market. This outperformance of the BOAB strategy is robust to different constructions of the BAB factor and is economically and statistically significant when compared with the usual asset pricing factors such as value, size, and momentum. The outperformance of the BOAB strategy could be used to inform agents’ portfolio allocation choices. Limitations are also discussed.

Classification of RBA monetary policy announcements using ChatGPT

ChatGPT is a tool that has gained much attention and has accelerated the adoption of Artificial Intelligence across many applications. Using monetary policy decisions made by the Reserve Bank of Australia (RBA), we test whether ChatGPT's classifications of monetary policy announcements are consistent with market-observed characteristics, whether this has changed with the update from GPT-3.5 to GPT-4, and whether this provides additional informativeness for changes in the yield implied by interest rate futures. Our results indicate that, regardless of statement readability, ChatGPT provides a classification of hawkish / dovish tone that is consistent with “Target Surprises” and “Path Surprises” and although it seems to improve in the latest version has more difficulty with “sentiment” classification. However, this information does not appear to help to explain changes in interest rate markets on the day of the policy announcement.

The Impact of Stock Splits on Stock Prices

Stock splits can increase liquidity and also attract smaller investors, although no single study has shown that stock splits have an effect on stock prices. The primary aim of this project was to find the impact of stock splits on stock prices. This paper uses Amazon and Google stock price data for research. The event study and market model were used to analyze the relevant data and to explore the effect. It includes a total of four events on the announcement day and implementation day of the two companies. The study results show that stock splits do have an impact on share prices.

The effect of monetary policy on firm-level uncertainty

Uncertainty at the firm-level falls on FOMC announcement days with substantial variation both across firms and over time. We find that this is not related to commonly used measures of monetary policy shocks which capture surprises about the expected path of the policy rate. Rather it is driven by changes in uncertainty around the expected path of the policy rate. This effect is attenuated for firms that have higher growth opportunities (as measured by Tobin’s Q).

Intraday Return Predictability in the Crude Oil Market: The Role of EIA Inventory Announcements

We study the impact of the announcements released by the US Energy Information Administration (EIA) on crude oil storage every Wednesday at 10:30 ET (the beginning of the third half-hour interval) on intraday return predictability, that is, intraday momentum. Our results indicate that returns on the third half-hour on EIA announcement days can significantly and positively predict the returns in the last half-hour, whereas, on non-EIA announcement days, only returns in the first half-hour have significant predictability. The dominant source of prediction in the first half-hour return mainly comes from the overnight component. EIA announcements contribute to intraday momentum because they attract more informed traders and because the period surrounding their release is often associated with a reduction in liquidity. Substantial economic gains can be made by using efficient intraday predictors as trading signals.