Cumulative Average Abnormal Returns Research Articles

The value effect of sustainability: evidence from Latin American ESG bond market

ABSTRACT We use the event study methodology to examine the effect of 115 environmental, social, and governance (ESG) bond issuances on the stock price of Latin American listed firms over the period 2016–2022. Consistent with the signaling theory, firms sending a signal of commitment to sustainability obtain a positive and significant average Cumulative Abnormal Return (CAR) of 1.97% during an event window of 18 days. The CAR is higher for first-time issuers, reaching 2.28%. Firms with smaller and more diverse boards are associated with higher CARs. However, ownership concentration reduces the CARs due to the potential misbehavior and expropriation risk from controlling shareholders. These results suggest that firm-level corporate governance mechanisms are critical to the ESG bonds signaling effect. Overall, our findings indicate that investors in Latin American capital markets positively value the reduction of information asymmetries regarding firms’ sustainability efforts, especially in a firm that mitigates potential agency conflicts.

January Effect And Size Effect Market Anomalies On Banking Companies In Indonesia Stock Exchange

In the capital market, each stock price must reflect all available and relevant information or commonly known as the efficient market. In an efficient market, market anomalies should not occur to affect abnormal returns. This study aims to test whether the Indonesia Stock Exchange has January effect and Size Effect anomalies that can affect the capital market to be inefficient. The population of this study were all banking stocks listed on the IDX in the 2018–2022 periods. From this population, incomplete historical data samples will be excluded from the calculation. Therefore, the sample that meets the criteria is 38 banks. The research is divided into two parts: the first to examine the January effect and the second to exam- ine the Size Effect. In the first study, researchers tested whether there was a significant difference between abnormal returns in January and other months. Statistical tests use the Wilcoxon Signed Rank Test. In the second study, researchers tested whether there was a significant difference between the Average Cumulative Abnormal Return (ACAR) of large market capi- talization stocks and the Average Cumulative Abnormal Return (ACAR) of medium and small market capitalization stocks. Statistical tests use the Paired Samples T-test. The conclusion of this study is that there is no effect of the January effect for the 2018–2022 period except for 2021 period and no effect of the Size Effect anomalies on banking stocks listed on the IDX for the 2018–2022 period.

Market Reaction to Environmental Disasters

Despite the fact that environmental issues are coming to the fore today, the market reaction to environmental disasters is not strong enough. This article examines the impact of a number of major industrial disasters on the companies’ stock performance, depending on financial health of the companies involved in an accident. We assessed the impact of financial indicators such as: financial leverage, profitability, balance value per share, capital expenditures, market capitalization and revenue on the amplitude of cumulative average abnormal returns (CAAR). The sample consists of 32 companies fromthe oil, chemical, mining and energy industries of developed countries involved in 80 major accidents between 2000 and 2020. The majority of disasters occurred in North America (47.5%) and in Europe (26.3%). Using the event study method to assess shareholders’ reaction and regression analysis, we proved that the financial leverage, profitability and book value per share has a positive impact on the amplitude of CAAR, while the ratio of capital expenditures to revenue has a negative impact on cumulative returns. The results showed that market capitalization and revenue growth do not affect the dynamics of stock prices after industrial disasters. In general, our study shows that the impact of all financial indicators on CAARis small (<1%). That is, despite the mandatory publication of climate risk reports, investors did not actively sell shares of companies guilty of industrial disasters. The results of the study are useful in several areas. On the one hand, by forming a diversified investment portfolio, investors taking into account the type of companies that are more sensitive to disasters. On the other hand, knowing such a market reaction, the state should provide financial players with strict rules and penalties for companies responsible for accidents.

Supply chain driven herding behavior during COVID-19: evidence of interdependence from India

Purpose This study aims to test the market anomaly of herding behavior driven by the response to supply chain disruptions in extreme market conditions such as those observed during COVID-19. The authors empirically test the response of the capital market participants for B2B firms, resulting in herding behavior. Design/methodology/approach Using the event study approach based on the market model, the authors test the impact of supply chain disruptions and resultant herding behavior across six sectors and among different B2B firms. The authors used cumulative average abnormal returns (CAAR) and cross-sectional absolute deviation (CSAD) to examine the significance of herding behavior across sectors. Findings The event study results show a significant effect of COVID-19 due to supply chain disruptions across specific sectors. Herding was detected across the automotive and pharmaceutical sectors. The authors also provide evidence of sector-specific disruption impact and herding behavior based on the black swan event and social learning theory. Originality/value The authors examine the impact of COVID-19 on herding in the stock market of an emerging economy due to extreme market conditions. This is one of the first studies analyzing lockdown-driven supply chain disruptions and subsequent sector-specific herding behavior. Investors and regulators should take sector-specific responses that are sophisticated during extreme market conditions, such as a pandemic, and update their responses as the situation unfolds.

Changing Share Price After Announcement Of The Merger And Acquisitions By Acquiring Firms Is Significant Or Insignificant

This Paper scrutinizes a model of merger and acquisition declaration of different companies in United Kingdom (Home Takeover) region and also other countries (Cross-Border Takeover) during the time period of 01 January 2019 to 30 June 2022 and finally displays the consequence of 50 Home takeover companies (UK companies acquired UK companies) and 50 cross- border companies (UK companies take over foreign companies) to recognize the post effect of merger andacquisition declaration on the stock prices of the target and acquired firms. Event Study Methodology has been used for this study, like, Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR) are used to analyze the different event windows about the stock prices of the target and acquired firms. A paired sample investigation has also been directed by associating the Pre- and Post- announcement returns on stock prices for the event window of ± 5 days of the target and acquired firms. In the event windows, the stock price of the target firm's all is not positive CAAR but pointedly dissimilar from zero. In the home takeover figures, all the AAR and CAAR are not significant and some negative returns after the post-declaration prove about the primary investor's overreaction and efficient market hypothesis (EMH). There is no presence of positive implication in the cross-border pre-event return but only a positive implication returns in the home takeover pre-event return that is also significant at the 10% level.

Valuation Effects of Magnitude and Frequency of Share Repurchases: Indian Evidence

This study examines the valuation effects of the magnitude and frequency of share repurchases for 181 Bombay Stock Exchange–listed stocks from 2000 to 2021. We investigate the valuation effect of share repurchases by calculating the sample companies’ average abnormal returns (AARs) and average cumulative abnormal returns (CARs) using the market model of event-study methodology. The findings show that the magnitude of share repurchases impacts the stock prices of the sample companies, regardless of the size of the repurchases concerning the total number of ordinary shares outstanding. Furthermore, when compared to single-time repurchasing companies, frequent repurchasing companies experience abnormal returns. This study contributes to the scant literature on the frequency and magnitude of share repurchases across the world.

Insights From Commodity Markets Reaction to the Russia–Ukraine War

The article aims to investigate how the Russia–Ukraine war has affected India’s base metal, energy, and bullion markets using short-term event technique. The official website of Multi Commodity Exchange of India Limited (MCX) has provided the daily prices for nine specific commodities and selected commodity indexes. The study discovered that the two countries’ conflict had no discernible effect on the Cumulative Abnormal Returns (CARs) of a few selected indices. However, more in-depth examination of specific commodities showed that the CAR of just the base metal index was considerably impacted. The study also observed that the war had an impact on returns of investors who experienced positive returns only in case of nickel whereas negative returns in case of copper, lead and zinc. However, analysis of the cumulative average abnormal return (CAAR) of the selected indices has revealed a consistent and significant negative impact which could be due to other external factors influencing prices of the commodity index and individual indices. The present study is quite useful to investors, traders, analysts, policy makers and risk managers as it assists them to make informed investment decisions, manage risk, identify potential opportunities in the market and develop trading strategies.

COVID-19, Economic Package and Indian Stock Market: An Event Analysis

The present study is an attempt to analyse the behaviour of securities around the outbreak of the COVID-19 pandemic and the declaration of an economic package by the government of India. In this study, daily prices of securities constituting the BSE 100 index are considered as these securities are highly traded and their trading impact would immediately reflect on the index. To present a sector-specific analysis, the securities are further classified based on sectors and are analysed using the event study methodology. Average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) for overall market and for each sector have been calculated and their significance have been tested using parametric T-statistics, standardised cross-sectional test and non-parametric sign test. Based on the analysis, the study concluded that it was not the pandemic but the actions towards controlling the pandemic that caused a negative impact on the Indian stock market. The economic package declared by the government of India to boost the economy also turned out to be futile and failed in achieving its objectives. Among the sectors, only the technology sector has been positively impacted by the pandemic. The outcome of the study would be beneficial to the trading community in identifying the sectors/securities that would act as hedging in the pandemic situations. JEL Codes: E44, G1, G14, G18

Dividend Announcement and Stock Prices: An Analysis of Selected IT Companies in India

The stock price movement attracts all stakeholders of the company. There are many factors as well as events that affect stock prices of the company and dividend announcement is one of them. So, the present study focuses on the impact of dividend announcements on share prices of selected IT companies listed in NSE in India. A dividend announcement gives a signal to investors about the company's strength and urges them to invest in the company's stock. The event study methodology is used in this study. Abnormal Return, Cumulative Return, Average Abnormal Return, Cumulative Average Abnormal Return, and t-statics of AR, CAR and CAAR are calculated. A paired t-test is calculated to measure the impact of a divided announcement on the share price before and after the announcement period. For that 21-day event window, 120 days of estimation window and 9 observations from the years 2016-17 to 2018-19 of selected.3 IT companies that are included in nifty50 as well as in nifty IT index and who are paying dividend have been selected. The paired t-test indicates a significant difference between pre and post-announcement periods in the year 2017-18 and shows insignificant differences in the years 2016-17 and 2018-19.

Economic Shockwaves: Examining Stock Market Behavior in Pakistan Amidst the COVID-19 Pandemic

The COVID-19 pandemic sent shockwaves through global economies, particularly affecting capital markets and stock price returns across major indices. This study examines the response of various industries listed on the Pakistan Stock Exchange (PSX) to the initial COVID-19 lockdown implemented on March 23, 2020. The research evaluates stock market reactions within a 61-day event window, with a focus on Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The study encompasses nine diverse industries and employs regression analysis to compute alpha and beta coefficients. Notably, the findings reveal short-lived negative impacts across industries, followed by swift recoveries, indicative of the stock market's resilience in Pakistan. Descriptive statistics highlight sector-specific characteristics, while regression results emphasize low stock return volatility. The study underscores the role of government interventions and investor confidence in mitigating the pandemic's economic impact, providing valuable insights for investors, policymakers, and researchers. This research contributes to our understanding of stock market dynamics during crises, particularly in emerging economies.

Investigation of winner-loser portfolio anomalies and size effect anomalies in LQ45 index, Indonesia stock exchange

This study investigates the anomalies of winner-loser portfolios and anomalies of size effect on LQ45 stocks in the Indonesia Stock Exchange (IDX), period 2015-2020. The paired sample t-test (parametric) and Wilcoxon test (non-parametric) are used to test samples. Sample selection is carried out using the non-probability and purposive sampling methods. The shares of companies that met the sample criteria were 26. The primary data used cumulative abnormal returns and market capitalization as proxies for a company's stock size. The anomaly of the winner-loser effect phenomenon is observed by dividing the data into two periods: the formation period and the testing period. The periods are both short-term and long-term. The short-term period is six months, and the long-term is 12 months. The first finding shows reversals in average cumulative abnormal returns (CARs) on the winner-loser stock portfolio. In the testing period, the average CARs were turned down, and many average CARs became negative. Portfolio loser in the testing period, the average CARs reversed to positive. The second is a reversal in average CARs in winner-loser stock portfolios caused by the size effect. The performance of small winner-loser portfolios is proven to outperform big winners' portfolios. The reversal occurs in both the short-term and long-term. This finding suggests that behavioral finance can explain this market anomaly, and it is helpful for investors in coming up with strategies to get abnormal returns.

Impact analysis of mergers and acquisitions on the performance of China's new energy industries

The development of new energy industries is crucial to a nation's energy transition to carbon neutrality, while photovoltaic, wind power, lithium battery, and new energy vehicles industries have been active in the capital markets. We choose mergers and acquisitions (M&A) activities in such industries in China to investigate how they affect firms' short-run market performance and long-run innovation. Using data gathered from 2012 to 2020, we evaluate the degree of stock price volatility with the Carhart four-factor model combined with event study analysis. Changes in innovation after M&A activity has occurred are evaluated using the PSM-DID model. Empirical analysis shows that M&A could have a positive, short-run impact on stock prices of new energy industries, while the impact of technology M&A on sub-industries is not consistent. The cumulative average abnormal returns (CAAR) of the wind power and photovoltaic industries turn from negative to positive, and the correlative new energy vehicles and lithium battery industries reach the highest returns in a window period with similar trend lines. Furthermore, technology M&A positively affects the innovation performance of new energy firms, and this effect lasts three to four years. In contrast to prior industry-wide and conclusion-inconsistent M&A studies, we concentrate on new energy industries and prove the definite positive effect of technology M&A for the firms.

Comparative Analysis of Stock Prices, Abnormal Return, Cumulative Abnormal Return, and Trading Volume Activity in the Indonesia Stock Exchange: An Event Study of the Russia-Ukraine War

The Russia-Ukraine war has captured international attention and raised concerns about its potential implications on global financial markets. This study aimed to investigate the interplay between geopolitical events, market reactions within the Indonesia Stock Exchange (IDX), and the market efficiency of the IDX. The study employed event study methodology and analyzed changes in stock prices, abnormal returns, cumulative abnormal returns, and trading volume activity. The sample comprised 53 companies in the energy sector and 57 companies in the food and beverage sector listed on the IDX. The analysis focused on data from 10 days before and after three Russia-Ukraine conflict-related events, namely (1) the announcement of Russia’s invasion of Ukraine on the 24th of February 2022, (2) the announcement of an oil import embargo on Russia by the European Union on the 31st of May 2022, and (3) the announcement of the first wheat export ship’s departure from the port of Odesa on the 1st of August 2022. Both paired sample t-tests and paired sample Wilcoxon signed rank tests were conducted to assess the statistical significance of differences in the means of paired samples. The findings revealed significant differences in average stock prices before and after all three events in the energy sector. However, only events 2 and 3 displayed significant differences in average abnormal returns and cumulative abnormal returns. Moreover, events 1 and 3 exhibited significant differences in average trading volume activity. In the food and beverage sector, a significant difference in average stock prices was observed before and after event 2, while all three events presented significant differences in average abnormal returns and cumulative abnormal returns. Furthermore, event 3 showed a significant difference in average trading volume activity. These findings indicated that the IDX displayed varying reactions to different Russia-Ukraine conflict-related events. Notably, events involving multiple countries or entities exerted a greater impact on the energy and food and beverage sectors within the IDX, leading to more pronounced market reactions. Additionally, the findings suggested that the IDX exhibited a semi-strong form of market efficiency.

Review of the impact of the FDA’s Fast Track Designation on biotechnology companies’ share prices

This study examines the effect of the FDA's Fast Track Designation (FTD) on biotech company share prices. Using an event-study approach on 25 FTD announcements between June 2019 and June 2020, notable short- and long-term share price hikes were observed, with a 5-day cumulative average abnormal returns of 21.59%, 30-day at 38.34%, 1-year at 76.64% and 3-year at 111.37% against the XBI benchmark. These surges surpass prior research findings, indicating stronger investor reactions. The role of the COVID-19 pandemic as a confounder is discussed. Although the sample size is limited, the results offer valuable insights for investors and small pharma firms. Further research is recommended to delve into the driving market factors.

Executing Financial Markets Analysis on Prominent Markets: A Case Study of (ASE) Amman Stock Exchange for Islamic Banks Shares in Jordan

Purpose: This research purpose is to test the efficiency of Islamic banks’ shares in the Amman stock exchange (ASE) at the levels of the financial markets efficiency hypothesis, especially of the weak level, by implementing and executing the random walk theory on stock and shares prices and returns of Islamic banks in Amman stock exchange (2018-2022). Theoretical Framework: Through financial analysis of a well-known market, we investigate the effectiveness of the Amman Stock Exchange for Islamic banks' share prices when they are in a weak state. The results of this study will inform financial analysts and numerous banking investors about the best investment strategies and techniques they can use to make investments in Jordan's financial market and generate abnormal returns over time. Design/Methodology/Approach: ASE index is used in studying the behavior of shares prices and the monthly changes as percentages in the market index as a representative of returns of shares. Numbers and values test such as time series, cumulative average abnormal return, and other observations were conducted to figure out whether prices in the near future and returns, generally, can be predicted and expected by using and analyzing historical prices and returns. Findings: The findings and results of this research are clarified by prices of shares and returns for Islamic banks not supporting the random walk theory and weak form level of efficiency. Research, Practical & Social implications: The study's primary goals are to: Analyze and determine whether financial theories and market analysis are appropriate for the Jordanian Amman Stock Exchange, to gauge the levels of financial markets' effectiveness, and to give information on when financial investors can expect a typical or abnormal return from investing in the financial markets. Originality/Value: This research can be a source of help to financial analysts to earn knowledge about Islamic banks' shares and return on shares as well.

When doing the right thing doesn't pay: Impact of corporate decisions on Russian market participation in the wake of the Ukraine-Russia war

This study investigates how the stock returns of firms that took corporate action against Russia following the onset of Ukraine-Russian war were impacted. We use traditional event-study methodologies to analyze the data. The findings indicate that the firms that opted to act against Russia in the wake of the onset of Ukraine-Russian war experienced a downward trend in cumulative abnormal returns (CARs) on average. Furthermore, we find that the stronger the action taken against Russia the more negative the average CARs. These findings are contrary to the idea that investors reward strong firm-level ESG actions and are robust to the choice of firms and event windows.

Equity issuance and share price performance on the Johannesburg Stock Exchange

ABSRACT Listed companies can acquire capital through a rights issue where existing shareholders have a preference in buying additional shares at a discounted rate, in proportion to their existing holding. When implemented, share prices tend to react to the announcement and the realisation thereof. Covering the period 2005–2022, an event study was implemented to determine the effect of a rights issue and its announcement for companies listed on the Johannesburg Stock Exchange. Depicting the results in terms of the Cumulative Average Abnormal Returns (CAARs), our findings indicate that share prices typically drop below the 5th percentile after a rights issue announcement and remain low for 30 days. Once implemented, share prices tend to increase beyond the 95th percentile and remain high. The research also indicates that the relative size of the rights issue does not affect these findings. Finally, resource companies are more prone to rights issue activities when compared to non-resource companies, whilst growth (versus value) companies are more negatively influenced.

Common Stock Returns around Farmout Announcements in the Oil and Gas Industry

We examine market reactions to farmout agreements, a common form of strategic alliance undertaken by oil and gas explorers internationally. Using an Australian sample of 722 farmout agreements announced during the 1990–2016 period, we find that farmout announcements generate a positive cumulative average abnormal return of 3.60% for farmors and 1.90% for farminees over a 3-day event window. Cross-sectional analysis of farmors’ event returns provides results consistent with the resource pooling hypotheses. We also find that farmors’ announcement returns are sensitive to the underlying oil price volatility, consistent with the real options view of farmout arrangements.

Financial Benefits of Peace Discourse between two Belligerent Neighbors

Political risk is an important factor for an international investor in order to diversify his portfolio. Regional political instability causes hindrance in economic development and therefore influences capital markets in the region. The objective of this paper is to investigate the impact of bilateral peace dialogue between India and Pakistan on stock markets of Pakistan. The study uses a quantitative research design with secondary data as source. The sample includes KSE all shares, and a cross-section of 575 stocks in PSX. The study uses event study methodology of Brown & Warner (1985). The methods of estimation include summery statistics, average abnormal returns summery, and event analysis. The dependent variable is average abnormal returns, and cumulative average abnormal returns, while independent variables are the news of peace dialogues. The sources of data collection includes “Data stream”, and Aljazeera website. Results suggest that abnormal returns of KSE All Share Index are not significant. Only a few peace dialogues occurring on October 19, 2007, April 24, 2008 and July 16, 2009 show significant CARs for eleven days event window. These results imply that peace process should be carefully drafted so that market can feel its presence. Additionally, central issues on Kashmir, Kargil, Siachen and so on should be resolved in order to bring peace in the region. This study contributes to emerging capital markets literature as it guides an international investor in gauging the stock market’s reaction in the wake of political events like peace processes. The study generalizes its findings on PSX only. The future research may consider the impact of peace discourse on stock market of other countries in comparative format.

The Effect of Political Contestation on Investor Reaction: Evidence from Indonesia Sharia Stock

Political events can cause uncertainty in the business environment and affect stock returns. This study aims to examine the reaction of sharia stock investor to political events in 2019. Some previous studies found that the influence of political events in Indonesia on investors' reactions is not yet conclusive. Therefore, this research utilized five political events during the general election they are: candidates inauguration, candidates’ final debate, quick count announcement, Election Commission (KPU) announcement, Constitutional Court (MK) announcement. This research used cumulative average abnormal return (CAAR) and average abnormal return (AAR) values as indicators in detecting investor reactions and used actively traded stocks listed on the Indonesian Sharia Stock Index (ISSI) from 2017 to 2019. The results of this study indicate that there is a negative reaction on t-1 before the debate of candidates. Furthermore, the opposite results occurred during the announcement of the presidential election results conducted by the Election Commission (KPU). This result indicates that investors quickly get information about political uncertainty. The implication is that political events are one of the relevant event studies to determine sharia stock prices to investors.