Announcement Day Research Articles

PRICE-GENERATING CHARACTER OF INFORMATIONS ABOUT NET FINANCIAL RESULT IN THE CASE OF WARSAW STOCK EXCHANGE

For most governments in the world, a fundamentally strong economy is the goal of their politics. One of the determiners of such economy is operating and developed capital market. This process, however, entails the necessity of its effectiveness. In relation to the capital market, the effectiveness may be defined in three dimensions [Sharpe, 1992]. One of them is the so-called information efficiency. The first man who drew attention on the possibility of occurrence informatively effective capital market was L. Bachelier [1900]. In his study he included a theory of price formation on the French stock exchange. However, its first actual definition has been put forward much later by E. Fama [1965]. According to it, on efficient capital market “prices always fully reflect all available information”.There is a number of information that may impact on the prices of financial instruments. These include: news of profit sharing (dividend payments), stock exchange analysts' recommendations, transactions made by insiders, split or resplit shares and information not necessarily related to particular company or an economic sector. Moreover, this information may be evidences derived from accounting. Data from the accounting system has a very significant impact related to the prices of companies listed on global stock exchanges. They enable the investors’ risk on the capital market. Concerning to that, they can improve the selection of entities characterized by a good economic and financial situation. Placing funds in these can mean that investors will achieve above-average profits in the future.One of the most important data coming from the accounting system is the information about companies net financial result (net profit or loss). Informing market participants about the net financial result may affect the price volatility of the issuer's financial instruments. It was already written about in current of the capital market research in accounting in the 1960s [Ball, Brown, 1968].Main aim of this paper was examination the impact of announcement information about net financial result on the market value the biggest companies listed on the Warsaw Stock Exchange grouped in the WIG20 index. To achieve this aim have used the event study methodology-one of the methods of measuring information efficiency of the capital market [Fama, 1969]. It is a research instrument used to assess investors’ reactions, while on the other hand it can be used as an element of financial market efficiency evaluation. For this purpose constructed 5-day long event window (where t0 was a day of announcement the financial report). Using the event study methodology, were calculated the abnormal returns for each quarterly report publications between 2016 and mid-2018 for each company in WIG20 index. Results of this paper are given below.

Information Uncertainty and Implied Volatilities

In the U.S. stock and options markets from January 1996 to December 2013, we examine whether information uncertainty explains the discrepancy between historical and implied volatilities in Goyal and Saretto (2009). In addition, we clarified the impact of the uncertainty on the stock market as well as on the options market. In particular, we calculated the performance of our zero-investment option portfolio selling option straddle positions of stocks in the first decile with the lowest discrepancy between the two volatilities and purchasing option straddle positions in the last decile with the highest discrepancy. Moreover, we estimate the returns of these portfolios held by until to the earnings announcement days as well as the returns of the portfolios held by one month. In our results, changes in information uncertainty are in tandem with changes in implied volatility and reduce the predictability of implied volatility for the future realized volatility. Additionally, we show an insignificant change in volatility skew during the time of a significant change in volatility implied from ATM options. Conclusively, we provide novel evidence that the uncertainty of information concerning a firm’s fundamental underlying volatility proposed in Hirshleifer (2001) significantly affects implied volatility.

Market-Based Monetary Policy Uncertainty

This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the transmission of monetary policy to financial markets. First, changes in uncertainty have substantial effects on a variety of asset prices that are distinct from the effects of the conventional policy surprise measure. For example, the Fed's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path. Second, at high levels of uncertainty a monetary policy surprise has only modest effects on assets, whereas with low uncertainty the impact is significantly more pronounced.

CAPM: A Tale of Two Versions

Categorization is the mental operation by which brain classifies objects and events. We do not experience the world as a series of unique events. Rather, we make sense of our experiences within a framework of categories that represent prior knowledge. Given that categorization is the core of cognition, we argue that the traditional view that each firm is viewed in isolation needs to be altered. Instead, like every other object they ever come across, investors view each firm within a framework of categories that represent prior knowledge. This involves sorting a firm into a category based on a subset of firm-attributes. Such categorization-relevant attributes are refined whereas other firm-attributes are confounded with the category-exemplar. Two versions of CAPM arise as a result. In the first version, the relationship between average excess return and stock beta is flat (possibly negative). Value effect and size premium (controlling for quality) arise in this version. In the second version, the relationship is strongly positive. The two-version CAPM accounts for several recent empirical findings including fundamentally different intraday vs overnight behavior, as well as behavior on macroeconomic announcement days. The tug-of-war dynamics of the two versions also suggest that momentum is expected to be an overnight phenomenon, which is consistent with empirical findings. We argue that, perhaps, our best shot at observing classical CAPM in its full glory is a laboratory experiment with subjects who have difficulty categorizing (such as in autism spectrum disorders).

Early Movers Advantage? Evidence from Short Selling during After‐Hours on Earnings Announcement Days

AbstractWe examine short sellers’ after‐hours trading (AHT) following quarterly earnings announcements released outside of the normal trading hours. Our innovation is to use the actual short trades immediately after the announcements. We find that on these earnings announcement days, there is significant shorting activity in AHT relative to shorting activity both during AHT on nonannouncements days and during regular trading sessions around announcements. Short sellers who trade after‐hours on announcement days earn an excess return of 0.82% and 1.40% during before‐market‐open (BMO) and after‐market‐close (AMC)sessions, respectively. The magnitude of these returns increases to 1.48 (3.92%) for BMO (AMC) earnings announcements with negative surprise. We find that the reactive short selling during AHT has information in predicting future returns. Short sellers’ trades have no predictive power if they wait for the market to open to trade during regular hours. In addition, we find that the weighted price contribution during AHT increases with an increase in after‐hours short selling. Overall, our results suggest that short sellers in AHT are informed. Our findings remain robust using alternative holding periods and after controlling for macroeconomic news announcements during BMO sessions.

Dividend Announcement Effect To Market Reaction in Non-Financial Companies Listed on Indonesia Stock Exchange


 
 
 Abstract: This study aims to examine the differences in market reaction before and after the announcement of dividend omissions and dividend initiations in non- financial companies listed on the Indonesia Stock Exchange in 2016-2018. The sample used in this study was 71 companies consisting of 26 companies that announced dividend omissions and 45 companies that announced dividend initiations. The sample was determined using the purposive sampling method. This study used the event study method with an event window period of 5 days before the announcement, the announcement day, and 5 days after the announcement. The Wilcoxon Signed Ranks Test results in this study indicate that there are no differences in market reaction before and after the announcement of dividend omissions. Meanwhile the announcement of dividend initiations shows that there are differences in market reaction before and after the announcement of dividend initiations.
 Keywords: Event study, Dividend Omissions, Dividend Initiations, Abnormal Return
 
 

The Dynamic Impact of Anonymity on Unsophisticated Liquidity under Changing Information Asymmetry

This paper finds that in Nasdaq Helsinki where brokers can voluntarily reveal or conceal identities, unsophisticated traders are less willing to trade after anonymous trades than non-anonymous trades. Using intraday order and trade data of large-cap stocks to which the voluntary anonymity model applies, I find that on earnings announcement days, before announcements, the duration-until-next-unsophisticated-order (DUNUO)—a novel unsophisticated liquidity measure—following an anonymous trade is 21 seconds longer than that following a non-anonymous trade. However, this difference reduces to 8 seconds when earnings information is disclosed, implying a reduction in the negative impact of anonymity caused by lower information asymmetry. Moreover, unsophisticated traders are found to be increasingly unwilling to trade as the degree of anonymity—whether the preceding trade is non-, half-, or fully anonymous—increases.

The Cross-Section of Monetary Policy Announcement Premium

Using the expected option-implied variance reduction to measure the sensitivity of stock returns to monetary policy announcement surprises, this paper shows that monetary policy announcements require significant risk compensation in the cross section of equity returns. We present evidence that our sensitivity measure captures the exposure of stock returns with respect to growth rate expectations. We develop a parsimonious equilibrium model in which FOMC announcements reveal the Federal Reserve's interest rate target, which affects the expected growth rate of the economy. Our model accounts for the dynamics of implied variances and the cross section of the monetary policy announcement premium realized around FOMC announcement days.

PERILAKU INVESTOR ATAS INFORMASI NEGATIF DALAM SUATU INDUSTRI

This study aims to examine empirically the investment behavior of investors over the announcement of financial distress of companies listed on the Indonesia Stock Exchange. The testing period in this study was 2005-2016. The behavior of investors in competing companies (non-delist) in the industry (known as intra-industry information transfer) can be seen from abnormal return patterns that occur in competitors' shares around the delist announcement day. Contagion effect occurs in competing companies in one industry that get negative reactions from investors while competitive effects occur in competing companies that get a positive reaction from investors over the delist announcement of other company. This study uses leverage and market capitalization of competing companies to explain the contagion and competitive effects. Sampling in this study uses a purposive sampling approach. Data analysis techniques in this study use one sample t-test. The number of samples in this study were 22 delist companies and 132 non-delist companies. This study showed that there was an intra-industry information transfer. Competitive effect occurs at t-3 and t+2 arround the delist announcement day. Specifically, market capitalization and leverage of non-delist can not explain the direction of intra-industry information transfer

US monetary policy and the pricing of American Depositary Receipts

I study the pricing of American Depositary Receipts (ADRs) on FOMC announcement days. I add to Savor and Wilson (2014) and Du and Hu (2015) by documenting that ADRs yield a significant fraction of their cumulative excess returns (about 36.16%) on FOMC announcement days characterized by a negative monetary surprise that account for less than 1% of total trading days between January 1997 and December 2016. One potential explanation might be found in the economically and statistically highly significant world market risk premia in the magnitude of 55.81 basis points on FOMC meeting days with negative monetary surprise.

Unconventional Monetary Policy, Fiscal Side Effects, and Euro Area (Im)balances

Abstract We study the macroeconomic effects of unconventional monetary policy in the euro area using structural vector autoregressions, identified with external instruments. The instruments are based on the common unexpected variation in euro area sovereign yields for different maturities on policy announcement days. We first show that expansionary monetary surprises are effective at lowering public and private interest rates and increasing economic activity, consumer prices, and inflation expectations. We then document that the shocks lead to a rise in primary public expenditures and a widening of internal trade balances.

Standing at Attention: The Impact of FOMC Press Conferences on Asset Prices

A press conference (PC) organized by the Federal Open Market Committee (FOMC) followed half of the scheduled announcements from 2011 to 2018. We document that excess stock returns are strongly and positively related to their betas on announcement days with a PC. In addition, the cross-sectional dispersion in betas declines substantially on PC days when measured using both daily and intraday return data. These effects are absent on announcement days without a PC. Last, we find that stock-bond correlations are positive (negative) on PC (all other) days and that their variations are related to uncertainty and yield curve information. We discuss implications and possible explanations for our findings.

Post Macroeconomic Announcement Reversal

We document that on the two days following macroeconomic news announcements, the stock market has negative excess returns, and the security market line has a significantly negative slope. These findings concentrate on days after bad macroeconomic news, which indicates that the market does not fully incorporate negative macro shocks on the announcement day. The underreaction effect is stronger among stocks with higher information uncertainty, tighter short-selling constraints, and when intermediary capital is scarce, consistent with the theory of limits to arbitrage. Considering the underreaction effect, we argue that the risk premium on macroeconomic announcement days is lower than previously believed.

Market-Based Monetary Policy Uncertainty

This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the transmission of monetary policy to financial markets. First, changes in uncertainty have substantial effects on a variety of asset prices that are distinct from the effects of the conventional policy surprise measure. For example, the Fed's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path. Second, at high levels of uncertainty a monetary policy surprise has only modest effects on assets, whereas with low uncertainty the impact is significantly more pronounced.

The inventory change surprise's role in energy price behaviour

In this paper, we investigate how the inventory announcements through information surprises affect energy commodity prices on return and volatility using a daily data from 9 November 2010 to 24 September 2013. The data set covers 150 inventory news released by the Energy Information Administration (EIA) for each commodity. Across a range of specifications, we find strong evidence for the negative effect of inventory surprises on energy commodity futures returns on the day of the announcement. In contrast, the effect after the announcement day becomes insignificant. Moreover, in separating inventory announcements into positive and negative surprises, we find that asymmetric responses in returns to EIA inventory shocks are pronounced for energy commodity. Finally, we show that natural gas volatility is susceptible to both positive and negative inventory surprises, whereas surprises do not matter for crude oil volatility.

Market Reaction to Stock Name Change Announcement in India

Increasing global contest possesses managed firms' en-path for higher demand for distinctiveness. Variables that are most eligible to uphold competitive supremacy, lead to emergence of company's image. Companies adopt stock name change strategy with a view to achieve corporate image. Name change signals variety of information that impacts the capital market. The present paper investigates stock name change impact on the shareholders wealth of Indian listed companies during 2008-2015. Using event study methodology, the results of the study suggests that on the announcement day abnormal returns were found and around the announcement with insignificant negative abnormal return indicating disapproval of name change. In addition, the type of industry in which the company lies does not create any value to the shareholders due to corporate name change. Further, it is analysed stock name change has no impact on shareholders wealth.

An Empirical Study on M&A Performance: Evidence from Horizontal Mergers and Acquisitions in the United States

Synergy theory holds that horizontal mergers and acquisitions (M&A) are conducted to obtain economies of scale. Horizontal M&A help companies restructure assets and resources, thereby improving the efficiency of management. Technology diffusion from the same industry help companies complement each other in R&D and improve product quality and efficiency. In addition, horizontal M&A can eliminate duplicate labor and achieve efficient use of equipment, thereby reducing fixed production costs. Scholars have made fruitful researches on the motives of horizontal M&A, and tend to agree that companies can profit from horizontal M&A. There are mixed results of empirical research on the effect of horizontal M&A, and cases of M&A failure occur from time to time. Whether horizontal M&A can achieve the desired results of managers? This paper chooses the horizontal M&A events between 1995 and 2005 when both sides of M&A are listed companies in the United States. Event study method is used to compare the volatility of stock prices in the event window of each participant to test the short-term performance of horizontal M&A. The empirical results of this paper show that the stock market in the United States has responded about a week before the announcement date of horizontal M&A due to the lack of standardization of information disclosure or inadequate regulatory means. Horizontal M&A enhance the shareholder wealth of the targets in the short term, while cause loss of shareholder wealth of the bidders on the announcement day of M&A.

Termination of supply chain strategic collaboration and market value: evidence from Chinese listed companies

Supply chain strategic collaboration (SCSC) is an important means for enterprises to cultivate competitive advantage in the supply chain, but this will also be accompanied by risks. This paper focuses on the impact of the termination of SCSC on market value. We select samples from Chinese listed companies to test the stock market reaction to the announcement of the collaboration termination. The results show that the mean (median) cumulative market reaction is −1.97% (−0.68%) on the announcement day and the day after the announcement, significantly different from 0 at the level of 1% (5%). We also find that the shorter the duration of collaboration, the more negative the market reaction. Compared with small companies, the market reaction of the announcement of termination of collaboration issued by large companies is more negative. In addition, the market reaction to the announcement in which the partner is non-listed is also more negative.

CAPM: A Tale of Two Versions

Categorization is the mental operation by which brain classifies objects and events. We do not experience the world as a series of unique events. Rather, we make sense of our experiences within a framework of categories that represent prior knowledge. Given that categorization is the core of cognition, we argue that the traditional view that each firm is viewed in isolation needs to be altered. Instead, like every other object they ever come across, investors view each firm within a framework of categories that represent prior knowledge. This involves sorting a firm into a category based on a subset of firm-attributes. Such categorization-relevant attributes are refined whereas other firm-attributes are confounded with the category-exemplar. Two versions of CAPM arise as a result. In the first version, the relationship between average excess return and stock beta is flat (possibly negative). Value effect and size premium (controlling for quality) arise in this version. In the second version, the relationship is strongly positive. The two-version CAPM accounts for several recent empirical findings including fundamentally different intraday vs overnight behavior, as well as behavior on macroeconomic announcement days. The tug-of-war dynamics of the two versions also suggest that momentum is expected to be an overnight phenomenon, which is consistent with empirical findings. We argue that, perhaps, our best shot at observing classical CAPM in its full glory is a laboratory experiment with subjects who have difficulty categorizing (such as in autism spectrum disorders).

Valuation effects of tax-free versus taxed cash distributions

This study attempts to resolve the puzzle regarding the announcement effects of cash distributions. The introduction of taxes on dividend income since 2009 has led many Greek listed companies to seek alternative ways of distributing untaxable income, at personal level, to shareholders, mainly through the form of return of capital. Employing a unique dataset of 130 returns of capital and a control sample of 890 dividends between 2000 and 2014, we investigate the stock price behaviour surrounding the announcement of these cash distributions. The results from the event study reveal a statistically significant market reaction on the announcement day for both cash distributions; however that of returns of capital was more than double compared to dividends (1.53% vs. 0.72%). The market reaction was even stronger when firms opted to distribute a dividend and a return of capital contemporaneously. Regression analysis delves into the determinants of the market reaction documenting that dividend or return of capital yield, firm size and profitability levels explain much of the stock price appreciation on announcement dates.