Average Abnormal Returns Research Articles

How do Investors Really React to the Appointment of Black CEOs?

A recently published study found that markets react negatively to the appointment of Black CEOs, with an average cumulative abnormal return of -4.21%. The authors argue this is caused by investors invoking racial biases and stereotypes. In contrast, using a comparable sampling period and analytic approach, we find markets react positively to the appointment of Black CEOs with an average abnormal return of +3.1% (or +2.0% after conservatively addressing outliers). Our results are consistent across several alternative analyses, sample adjustments, and robustness tests. We argue racial biases and stereotypes in markets are outweighed by investor appreciation for the higher bar for advancement that Black CEOs face and the exceptional attributes they must exhibit as a result. To conclude, we discuss implications of our findings.

Merger as Strategic Partnership to Support SDG: A Positive Signal for Investors in Stock Market of APEC Member Countries

A merger is one of the strategic partnerships undertaken by a firm to pursue future growth and sustainability. Merger information signals a firm’s prospects to investors in the stock market. The present study examines investors’ reactions toward merger announcements under the different payment methods. The sample comprised 115 firms from the member countries of the Asia-Pacific Economic Cooperation (APEC) that announced a merger between 2014 and 2018. The study employed the event study to test whether the bidding firm generates abnormal returns during the time surrounding the merger announcement and evaluate the differences in the returns between cash and stock payment of the merger. The results revealed that cash payment earned a significantly higher abnormal return post- than the pre-merger announcement, while there was no significant abnormal return for the period of pre- compared to the post-merger announcement in stock payment. Additionally, cash payments generated significantly higher cumulative average abnormal returns than stock payments. These findings imply that investors’ sentiments respond more positively to cash financing. The study confirms the signaling theory in which a firm action announcement conveys information to investors in the stock market.
 Keywords: merger, event-study, APEC, sustainability

Respon Jangka Pendek Pasar Saham Indonesia terhadap Wabah Pandemi Covid-19

The Indonesian stock market's response to the pandemic Covid-19 outbreak uses the event study method with abnormal return technical tools. This study aims to determine the stock market response to Covid-19, namely responding significantly negative and not because many stocks in other countries were affected by Covid-19. This event study method had carried out observations from 12 days before the announcement to 30 days after the announcement of Covid-19. The results of the data show that the data has no significant effect before and after the announcement by t-statistical analysis. In the significance test with daily observation data, the average abnormal return has no significant effect before the announcement. Then, after the announcement, the average normal return on the 5th, 8th, 15th, 17th and 26th day responded significantly negative, although not entirely. The results of this study indicate that the response of the Indonesian stock market is significantly negative due to the Covid-19 outbreakDOI: https://doi.org/10.26905/afr.v5i2.7601

U.S.–China trade war and corporate reallocation: Evidence from Chinese listed companies

AbstractThis paper applies a difference‐in‐differences framework to explore the economic consequences of the recent U.S.–China trade war. The average abnormal returns of Chinese listed firms during a period centered on President Trump's announcement on 22 March 2018 are taken as a proxy for the firms' exposure to the potential trade war. Firms more negatively exposed are found, surprisingly, to report higher total revenues in the post‐announcement period. The results indicate that the Chinese firms tend to reallocate their business from overseas to the domestic market. Such within‐firm reallocation is found to be more pronounced among private firms, exporting firms and non‐FDI firms. Besides, firms with higher negative exposure increase total investment and financing but decrease foreign investment after the trade war.

STOCK PRICE RESPONSE TO BONUS SHARE ANNOUNCEMENT- EVIDENCE FROM NSE, INDIA

Corporate events have considerable effect on the movement of stock price that attracts lots of research. Likewise, Bonus share is one of the significant events in company and brings volatility to the stocks. The present study focuses on response of stock price movement to the announcement of bonus share. A study focused on 4 selected stocks having bonus share announcement between October 2019 to March 2021. A standard event study methodology was used to analyze the response of bonus share announcement on abnormal returns (AR) for the sample stocks surrounding forty one days of the announcement date (including announcement date). Average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) were computed. Paired t-test was used for analyzing significance of bonus share announcement on AAR. From the study, it can be inferred that bonus share announcement has shown negative significant impact on AAR.

REAKSI PASAR MODAL INDONESIA TERHADAP PENGUMUMAN RESHUFFLE KABINET INDONESIA MAJU JILID I DAN II

This study aims to see whether or not there is a market reaction when information about the Indonesian Maju Cabinet reshuffle volumes I and II is circulated in the Indonesian capital market. This study use event study methods. Data analysis was carried out through different tests. The sample used is financial sector in Indonesia Stock Exchange. The variables used to measure market reaction is average abnormal return (AAR) and average trading volume activity (ATVA). The results of this study found that there is no significant difference in AAR and ATVA between before and after the event, both in the Indonesia Maju Cabinet reshuffle event Volume I and Volume II, which indicates that the two events are not contain information that is sufficiently informative to influence the market.

Asian perspective of capital market performance amid the COVID 19 pandemic

PurposeThe purpose of this research is to investigate the short-term capital markets' reactions to the public announcement first local detection of novel corona virus (COVID 19) cases in 12 major Asian capital markets.Design/methodology/approachUsing the constant mean return model and the market model, an event study methodology has been implied to determine the cumulative abnormal returns (CARs) of 10 pre and post-event trading days. The statistical significance of the data was assessed using both parametric and nonparametric test statistics.FindingsFirst discovery of local COVID 19 cases had a substantial impact on all 12 Asian markets on the event day, as shown by statistically significant negative average abnormal return (AAR) and cumulative average abnormal return (CAAR). The single factor ANOVA result has also demonstrated that there is no variability among 12 regional markets in terms of short-term market responses. Furthermore, there is little evidence that these major Asian stock market indices differ significantly from the FTSE All-World Index which might suggest possible spillover impact and co-integration among the major Asian capital markets. The study further discovers that market capitalization and liquidity did not have any significant impact on market reaction to announcement.Research limitations/implicationsThe study's contribution might have been compromised by the absence of socio-demographic, technical, financial and other significant policy factors from the analysis.Practical implicationsThese findings will be considerably helpful in tackling this unprecedented epidemic issue for personal and institutional investors, industrial and economic experts, government and policymakers in assessing the market in special circumstances, diversifying risk and developing financial and monetary policy proposals.Originality/valueThis paper is the first to examine the effects of local COVID 19 detection announcement on major Asian capital markets. This study will add to the literature by investigating unusual market returns generated by infectious illness outbreaks and the overall market efficiency and investors' behavioral pattern of major Asian capital markets.

Reaksi Pasar Modal Terhadap Pengumuman Pertama Kasus Positif COVID-19 Di Indonesia

This study aims to examine the reaction of the capital market to the announcement of the first positive cases of Covid-19 in Indonesia in manufacturing companies, especially the Multi-Industry sector listed on the Indonesia Stock Exchange. This study uses the Event Study method by taking the events of the first announcement of a positive case of Covid-19 in Indonesia which was published on March 2, 2020 by the president of Indonesia, Joko Widodo. This research was conducted to determine the information content and to see the reaction of the event by looking at the difference between Average Abnormal Return and Average Trading Volume Activity. Data taken 7 days before and 7 days after the announcement of the first positive case of Covid-19 in Indonesia. The results showed that: (1) There was no significant difference in the average Abnormal Return between before and after the announcement of the first positive case of Covid-19 in Indonesia. (2) There is a significant difference in average Trading Volume Activity between before and after the announcement of the first positive case of Covid-19 in Indonesia.

Stock market reactions of Malaysian firms and industries towards events surrounding COVID-19 announcements and number of confirmed cases

PurposeThis paper aims to examine the stock market reactions of firms and industries in Malaysia to the government’s COVID-19 movement control order (MCO) announcement. As China is Malaysia’s leading trading partner, the authors also observe if the Chinese Government’s confirmation of human-to-human coronavirus transmission affects firms’ stock market reactions. In addition, this study examines whether the Malaysian Government’s ease of restrictions on economic activities affects firms’ stock market reactions. Finally, this study analyses the effect of COVID-19 number of confirmed cases on firms’ abnormal returns.Design/methodology/approachThis study uses an event study methodology to determine the abnormal returns between day −30 to day 30 of the announcements. In addition, this study uses the regression estimation to determine whether the COVID-19 number of confirmed cases explain the abnormal returns.FindingsThis study finds that investors react negatively to the announcement of the MCO and confirmation of the human-to-human transmission of coronavirus over the event windows. However, the cumulative average abnormal returns (CAARs) started to recover when stimulus packages were introduced, and the lockdown measures were eased, allowing businesses to reopen. This study also finds that only firms in the health-care sector reported significant positive CAARs. Stock returns of the utilities and telecommunication firms showed no changes, while eight other sectors fell remarkably. The results also show that the COVID-19 number of confirmed cases adversely affects firms’ abnormal returns.Practical implicationsThis study suggests that stock prices incorporate bad and good news surrounding the announcements of major international and local events related to the COVID-19 pandemic. Thus, investors should consider such factors in making investment decisions.Originality/valueTo the best of the authors’ knowledge, this paper is one of the early research works investigating the stock market reactions to the COVID-19 major announcements (MCO, human-to-human transmission and ease of restrictions on economic activities) using an event study methodology in an emerging market, namely, Malaysia. This study is timely in light of the recently increasing calls for researchers to analyse the potential economic impacts of COVID-19 on global capital markets, especially in emerging markets whose evidence is scarce.

MARKET REACTION IN THE MANUFACTURING SECTOR SHARE TO THE EVENT OF THE APPROVAL OF THE JOB CREATION LAW IN 2020

This study aims to determine the Market Reaction in Manufacturing Sector Stocks to the Legalization of the Job Creation Law 2020. The purposive sampling technique was used from all manufacturing companies listed on the Indonesia Stock Exchange for the 2020 period. The event study analysis technique was used in this study with an observation period of approx. 21 trading days (10 days before and 10 days after).
 The results of statistical tests on abnormal returns show that there is no significant difference in the average abnormal return before and after the event and indicates a semi-strong form of market efficiency. The results of statistical tests on trading volume activity show that there is a significant difference in average trading volume activity before and after the event. This study implies that the ratification of the Job Creation Law has an impact on the investment climate so that when major political events occur, it is hoped that market participants will be more careful in making investment decisions, especially in buying and selling shares.

Impact of Electioneering on Currency and Stock Market; Evidence from South Asian Countries

The basic purpose of this study is to examine the impact of electioneering on currency and equity market of south Asian countries (Pakistan, India, Sri Lanka, Nepal, and Bangladesh) during electioneering. Event study analysis is used for the calculation of Abnormal Returns (AR), Cumulative Abnormal Returns (CAR), Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The results indicate that there is a significant impact of electioneering on Pakistan currency and equity markets, whereas in Nepal and Bangladesh it is significant only for the equity market. On the other hand, it shows insignificant impact in India and Sri Lanka for CAAR using the constant return model. The findings depict that Pakistan’s both markets are inefficient, whereas Nepal and Bangladesh equity markets are inefficient markets, it means that these markets fail to fully reflect public information. While India and Sri Lanka’s markets are efficient markets.

IPOs in New Zealand: Nonfinancial disclosures, valuation, and short-term performance

This study examines the effects of offer characteristics and prospectus disclosures of nonfinancial information on the valuation at the offer and the short-term performance of NZX-listed IPOs over the period 1991–2017. Compared with sector/industry–matched peers, the median IPO is overvalued by 39% at the offer, and more overvalued IPOs do not achieve higher cumulative abnormal returns (CARs) within the first year post-listing. IPOs purchased at the offer yield first-day average abnormal return of 3.4%–3.8% and one-year average CARs of 3.54%–6.21%. Determinants of valuation and short-term performance include the time gap between prospectus registration and offer open, float rate, investment bank reputation, and prospectus disclosures of an employee share ownership plan or a people-focused culture.

Insider Trading at Zagreb Stock Exchange

Abstract This paper is the first paper that systematically observes and describes all publicly available data on insider trading on the Zagreb Stock Exchange during the period of June 2010 - June 2021. To accomplish this objective both parametric and non-parametric event-study tests are conducted using the data collected from 827 notifications published on the Zagreb Stock Exchange website. After filtering the notifications for overlapping events, there were 48 insiders’ purchase events and 50 insiders’ sales events. The results indicate that insiders can earn abnormal returns on share purchases based on their insider knowledge and that the information on insider purchases can bring additional information to outside investors. However, in the case of notifications of share sales by insiders, Cumulative Average Abnormal Returns (CAARs) after the event are not statistically significant and are just slightly positive, thus bringing no abnormal returns for insiders and not conveying information to the public. This suggests that the market may perceive sales having a lower informational content, as motivation for sales may be other needs, such as liquidity.

The Health Sector Stock Market Reaction to the Implementation of the PSBB Policy Due to Covid-19 in Indonesia

<p align="center"> </p><p><em>The pandemic that occurred at the end of 2019 resulted in changes in various sectors of life globally. Indonesia is one of the countries affected by this condition. After the government implemented the Large-Scale Social Restrictions (PSBB), this affected the stock market reaction, especially in the health sector. The research uses a quantitative approach with the type of event study research. This study uses descriptive statistical analysis. In order to test the normality of the data, it is necessary to test for normality using the Shapiro Wilk method. This is because the data used is less than 50. The researcher uses a hypothesis test t Test for data that is normally distributed, while for data that is not normally distributed, it can be tested with the Wilcoxon Signed Ranks Test. The results of this study indicate that before and during the implementation of PSBB, the abnormal return yields were insignificant, and there was no difference between the Average Abnormal Return before and during the implementation of PSBB in the health sector, but the Average Trading Volume Activity showed differences between before and during the implementation of PSBB. when the PSBB was implemented in the health sector. The conclusion is that before and when the PSBB was implemented, it showed that there was no significant difference in the Average Abnormal Return of the health sector, which means that the PSBB did not affect the Average Abnormal Return in the health sector but caused a significant difference in the Average Trading Volume Activity of the health sector, which means that the PSBB had an effect on the Average Trading Volume Activities (ATVA).</em></p>

Capital Market Reaction to The Tax Amnesty Policy (Study on Banking Sector Share in Indonesia)

An event or a policy taken by the government can be one of the considerations for investors in making investment decisions in a country. The existence of these events certainly contains information that can be interpreted to carry out transactions in the capital market. The tax amnesty policy is assumed to contain information that is able to respond to capital market players. The reaction of capital market participants can be measured by abnormal returns and trading volume activity. Therefore, it is necessary to conduct research on the reaction of the capital market to the tax amnesty policy in Indonesia on shares in the banking sector because banks are the gateway for the entry of tax amnesty funds. There are 14 bank shares included in the study that fall into the criteria of government perception banks and have IPOs. This study uses the event study analysis method with an observation period of 11 days, namely t-5 to t+5 and t0 as event dates in all tax amnesty policy periods, period I (1 July 2016), period II (1 October 2016), period III (1 January 2017). The research analysis technique used a paired sample t test. The results of the study indicate that there is a reaction in banking stocks to the tax amnesty policy which can be seen from the significant positive difference between the cumulative average abnormal return before and after the tax amnesty policy period I and II, as well as the difference in cumulative average trading volume activity between before and after the tax amnesty policy period I, II, and III. The results of the study conclude that the tax amnesty policy has succeeded in increasing trading activities and providing abnormal returns to investors for two periods on banking stocks so that this issue provides meaningful information and is good news for investors.

Profit Warnings and Stock Returns: Evidence From Moroccan Stock Exchange


 
 
 
 There is an important literature focused on profit warnings and its impact on stock returns. We provide evidence from Moroccan stock market which aims to become an African financial hub. Despite this practical improvement, academic researches that focused on this market are scarce and our study is a first investigation in this context. Using the event study methodology and a sample of companies listed in Casablanca Stock Exchange, we examined whether the effect of qualitative warning is more negative compared to quantitative warnings in a short event window. Our empirical findings show that the average abnormal return on the date of announcement is negative and statistically significant. The magnitude of this negative abnormal return is greater for qualitative warnings than quantitative ones.
 
 
 

The Impact of Covid-19 Pandemic to Palm Oil Companies Stock in Indonesia

The purpose of this study was to analyze the differences in the average abnormal return, the average trading volume of activity, and the average bid-ask spread on the stock of oil palm companies in Indonesia before and after the announcement of New Normal in Indonesia and the opening of lockdown in the country export destination. In this study, three countries were taken by the Netherlands, Malaysia, and Singapore. 13 companies sampled in this study are determined using purposive sampling techniques. The data used in this study are secondary data accessed by researchers through the Yahoo Finance website and the Indonesia Stock Exchange. The variables used in this study are abnormal returns, trading volume activities, and bid-ask spreads. The testing carried out in this study used a paired t-test and tested Wilcoxon test. The results of this study indicate: (1) The results of statistical testing on the average abnormal return during the event, there is a difference in the normal new event in Indonesia, the opening of lockdown in the Netherlands and Singapore. The average value of the abnormal return is positive, so it can be concluded that this event is categorized as good news. (2) The results of statistical testing on the average trading volume activity during the event show a difference in the opening of the lockdown in Malaysia. (3) The results of testing at the average bid-ask spread during the event show a difference in the opening of the lockdown in Malaysia. Keywords: Covid-19, palm oil, abnormal return, trading volume activity, bid-ask spread

THE IMPACT OF BUY – SELL RECOMMENDATIONS ON BANKS’ STOCK RETURNS

The aim of this research was to investigate the impact of stock buy-sell recommendations of brokerage houses on the stock returns of banks operating in Borsa Istanbul (BIST). Accordingly, it has been attempted to assess if investors can receive abnormal returns in accordance with the recommendations of brokerage houses using the case study technique. The validity of the semi-strong effective form of investors who made a buying-selling decision based on brokerage house recommendations was investigated. The returns of the banks' stocks were obtained from the data-stream database. The study evaluated buy-sell recommendations for four large brokerage houses and analyzed data from January 2018 through December 2020. The event study method was used, and t-test was performed in order to determine the difference of abnormal returns from zero in the research. As a result of the research, a negative abnormal return was determined on the day of the event and the day after the sell recommendation was given. Besides, a positive abnormal return was determined on the day before the announcement and on the day of the event in the bank stocks on which buy recommendation has been given. In this respect, the average abnormal and cumulative abnormal returns indicated that BIST was not an efficient market in a semi-strong form for the banking sector. When the sell recommendations and their effects are examined within the scope of the research, it is seen that the day before [-1] p=0.016 value was obtained, on the day, [0] p=0.018 value was obtained, the next day and two days later [+1, +2] p=0.077 and 0.046 values were obtained. On the other hand, when the buy recommendations and their effects are examined, it is seen that the day before [-1] p=0.000 and on the day [0] p=0.098 values were obtained. T-test results and p values show that brokerage house recommendations are effective on stock returns in the BIST banking sector, and therefore BIST banking sector is effective in a weak form. The obtained results of the study were crucial for investors who invested in short-term stocks.

The COVID-19 pandemic and stock market performance of transportation and travel services firms: a cross-country study

This paper examined the firm-specific abnormal returns of transportation and travel services sectors from the USA, UK, France, China, India, Mexico, Turkey, and Thailand in response to Coronavirus Disease 2019 (COVID-19) using event study methodology. Our results revealed that investors in developed countries provide significant long term abnormal returns for the first 101 days. Furthermore, no significant cumulative average abnormal returns (CAAR) were found in response to the COVID-19 outbreak, travel restrictions, lockdown, stimulus package, and historical decline in oil prices except in the case of the USA. It is concluded that with the gradual increase in new cases and deaths, abnormal returns are also adjusted, making the effects of these events insignificant at the time of their occurrence. Results also showed that firms in developing countries recognized significant negative abnormal returns in response to the second wave of COVID-19. These results are useful for investors in devising investment strategies relevant to contextual settings.

The Influence of the COVID-19 on the GCC Stock Markets

This research paper examined the influence of the COVID-19 pandemic on the GCC stock markets indices. By employing the Event Study Methodology (ESM), the findings confirmed that all GCC stock market indices were affected negatively by the COVID-19 pandemic. The GCC stock markets interacted negatively with the early announcement of the first confirmed cases of COVID-19 in Wuhan city in China in December 2019. They were greatly affected when the World Health Organization (WHO) announced that the COVID-19 virus had become a pandemic. The cumulative average abnormal returns (CAAR) for all of the GCC stock market indices revealed that all of the GCC stock markets were negatively affected by the COVID-19 pandemic during all investigated event windows.