Cumulative Average Abnormal Returns Research Articles

How artificial intelligence incidents affect banks and financial services firms? A study of five firms

We investigate the impact of AI incidents on banking and the financial industries. By analyzing five U.S. banks and financial services firms, we find that the average short-term Cumulative Abnormal Returns (CARs) loss of AI incidents is -21.04 % and the negative impact can spread out to the financial industry with a three-day loss of -0.13 %. Compared to firms without AI incidents, banks and financial services firms with AI incidents have higher bankruptcy risk and lower operational cash flows. To our knowledge, this is the first study analyzing the AI incident impact on the performance of banks and financial services firms.

Impact of the Israel–Hamas conflict on financial markets of MENA region – a study on investors’ reaction

PurposeThis study aims to examine market reactions to the Israel–Hamas conflict in neighboring countries, particularly focusing on the Middle East North Africa (MENA) region.Design/methodology/approachThe study adopts an event study methodology, employing average abnormal return (AAR) and cumulative abnormal return as measures to assess market reactions. The sample for this study comprises 1,314 companies, with October 9, 2023, identified as the event day for analysis.FindingsThe results of our study indicate that countries in close proximity to Israel and Palestine encountered detrimental effects on their capital markets, as evidenced by negative responses observed across various sectors. Our analysis also reveals that countries in the midst of conflict, particularly Israel, experienced a decrease in their stock markets across various sectors, with the exception of materials and real estate. In addition, our investigation reveals disparities in market responses according to different categories of company size.Originality/valueThis research is the first to study market reactions to Israel–Hamas in the MENA region at the company level.

Corporate spin-offs and stock performance: a comparative study of pure and composite schemes

PurposeSeveral studies have examined the relationship between spin-off announcements and stock performance. However, a comparison of the announcement effect of different schemes of spin-offs remains relatively underexplored in the literature. This study aims to find the differential impact of pure scheme and composite schemes of spin-offs on parent company stock performance. A pure scheme includes only the separation of business into independent companies, while a composite scheme includes a simultaneous merger of one of the companies with another company along with separation.Design/methodology/approachA total of 109 pure and 51 composite spin-off announcements made by Indian listed companies from 2010 to 2023 are examined using event study methodology. The cross-sectional t-test is used to measure the significance of abnormal returns. The t-test for two sample means (right-tailed) is incorporated to test the significance of variations in the stock returns of pure and composite schemes of spin-off announcements. Cross-sectional regression is also done to evaluate the impact of the type of scheme on the spin-off return.FindingsThe study found a cumulative average abnormal return of −1.06% for the pure spin-off and 8.27% for the composite spin-off over a 41-day event window. The univariate analysis revealed that the composite scheme generates a significantly higher cumulative average abnormal return than the pure scheme. Regression analysis also confirmed that the composite scheme significantly positively impacts the stock return. It can be concluded that investors favour the composite scheme, expecting that it will deliver a better strategic fit and generate synergy.Originality/valueThis paper makes a valuable contribution to the existing literature on corporate spin-offs. The study by analysing and comparing how the spin-off and merger combination differently affects the stock performance, helps the investor who wants to capitalize on the market imperfections and the managers to make complex business decisions.

Short-term market reactions to ESG ratings disclosures: An event study in the Chinese stock market

This paper evaluates how Chinese stocks respond to the onboarding of China-focused ESG scores on the Bloomberg Professional Terminal in the short term. By utilizing the event study approach, we find that the top 10 % of ESG-rated stocks react significantly positively to the onboarding event, whereas the bottom 10 % of ESG-rated stocks experience significant and negative cumulative average abnormal returns. Moreover, this effect is asymmetric in that the negative returns have a greater and more prominent magnitude than the positive returns. By comparing the cross-sectional data results before and after the rating event, we propose several channels through which these effects may function. The findings of this study also have economic and policy implications for investors and policy-makers.

Impact of Mergers & Acquisitions Announcements on Stock Prices

This study examines the impact of M&A announcements on stock prices in India, by utilizing event study methodology and a dataset of 15 announcements. It identifies dynamic trends in stock performance before and after theannouncements. The Efficient Market Hypothesis (EMH), which posits that the market incorporates all relevant information, is evident in stock price volatility. The post-COVID-19 market environment has heightened investor caution due to substantial losses. The research, covering M&A announcements from 2014 to 2023, uniquely contributes by analysing pre- and post-COVID investor sentiments. Although substantial results were produced, the analysis of Abnormal Returns (AR) and Cumulative Average Abnormal Returns (CAAR) indicates that M&A announcements did not significantly impact overall stock performance, thereby supporting the EMH. These findings provide valuable insights into market responses to M&A in India, benefiting investors, business strategists, policymakers, and other stakeholders.

How do the Green Energy Stocks React to Green Bond Issuances?

Achieving sustainable development is one of the main issues at the global level and both public and private sector enterprises need to make large – scale investments to fight against climate change. In this respect, green bonds gain importance to raise money for environmentally – friendly projects, especially clean energy. Proceeds from green bonds are earmarked towards financing of investments that have positive environmental impacts. This paper explores the relationship among green bond issuances and stock market reaction with special focus on renewable energy firms. Herein, through a dataset of green bond issuance announcements worldwide by 46 unique firms over the period from 2014 to 2023, we investigate how the share prices respond to such announcements using event – study methodology. From the empirical evidence of the downward stock price movements, we suggest that investors react negatively to the announcement of green bond issuances. In other words, we find significant and negative cumulative average abnormal returns (CAAR) across all the event windows except in the window of [0, 10], meaning that our findings are robust to several alternative event windows. Further, we determine that the share price response, in general, does not differ depending on the use of green bond proceeds and the years.

How do investors value the publication of tax information? Evidence from the European public country‐by‐country reporting

AbstractWe examine the costs associated with public disclosure, as opposed to confidential reporting, of tax country‐by‐country reporting (CbCR) information. Our study addresses a critical knowledge gap, considering the growing adoption of public tax transparency measures. We aim to illuminate this matter by examining the expected costs for firms of making previously confidential CbCR information publicly available. The fact that the information was previously confidentially reported to the tax authorities allows us to assess the cost of publication in isolation. Employing an event study methodology, we provide early evidence on the capital market reaction to this new requirement on a sample of European firms falling within its scope. We document a significantly negative cumulative average abnormal return of EUR 47 billion to 64 billion for up to 3 days following the announcement. Additional cross‐sectional results suggest that concerns about the reputational costs arising from public scrutiny and the proprietary costs from disclosing sensitive business information outweigh the potential benefits of an extended information environment from an investor perspective. Our findings highlight that the public disclosure of tax information imposes significant—and likely unintended—costs from a firm perspective. This aspect should be carefully considered when developing tax transparency measures.

The Impact of Spin-Off Announcement Toward Stock Performance: Evidence from Global Telecommunication Companies

This study aims to give telecommunication companies insight into how markets react toward spin-off announcements as one of the considerations for whether to spin-off or continue to be a vertically integrated telecommunication company. Analysis method is based on a prior study by measuring the announcement effect using event study methodology. The novelty of this study is that the scope is global, and it focuses on spin-off announcements on telecommunication companies. This study shows empirical evidence of the spin-off announcement effect based on a sample of 50 spin-off events from telecommunication companies based in 20 countries spreading over six continents. It shows mixed results between negative and positive Average Abnormal Returns (AAR) around the spin-off events, with the majority of the Average Abnormal Returns (AAR) being negative. It also shows that the Cumulative Average Abnormal Return (CAAR) in the 20 trading days post-event window after spin-off announcement is negative. Recent spin-offs do not exhibit the same significant Cumulative Average Abnormal Return (CAAR) behavior as the past one. The result of this study is also consistent with the semi strong efficient market hypothesis.

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

PurposeThis 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/approachUsing 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.FindingsThe 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/valueThe 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.

Event Analysis of the Impact of the Announcement of Selected Competitive IT Strategy Companies on Stock Returns in Japan

Since FY2015, the Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange (TSE) have jointly been selecting the excellent Japanese firms for their efforts for IT utilization as “Competitive IT Strategy Companies.” This paper investigates and examines stock market reaction to the announcement of the selected Competitive IT Strategy Companies. We use an event study methodology with a market model on a sample selected in FY2018. Our empirical analysis shows a few reactions in stock returns around the event day. The cumulative average abnormal return (CAAR) during the event period [-5,0] is significantly positive at the 10% level. This result indicates that the stock market reaction may have started prior to the 2018’s announcement date. The findings suggest that this study demonstrates the effectiveness of public policy program by METI and TSE, and assists investors in making wise decisions before reacting to the announcement of this annual program.

The Comparison of Impact of UNGC and the Paris Agreement on the financial sustainability of Various Industries globally

This study researches the impact of the Paris Agreement and the United Nations Global Compact (UNGC) on financial sustainability across various industries and states worldwide, a topic of significant global discourse. As sustainable development goals increasingly shape the modern economy, actors at different levels of the global community are ensuring Environmental, Social, and Governance (ESG) standards. However, the economic crises of the past decade have intensified competition among states. By using an event study model, specifically the Cumulative Average Abnormal Returns (CAAR) approach, this research analyzes the diverse impacts of the Paris Agreement and the UNGC on financial sustainability. It examines how these agreements affect developed versus developing states, and ecologically sensitive versus non-sensitive industries, and assesses whether the Paris Agreement has a stronger impact than the UNGC. Furthermore, this paper engages in a discourse on the influence of ESG on financial sustainability, highlighting associated challenges and potential solutions.

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.