Stock Price Decreases Research Articles

Development of an Ensemble Learning-based intelligent model for Stock Market Forecasting

The use of artificial intelligence-based models have shown that the market is predictable despite its uncertainty and unstable nature. The most important challenge of the proposed models in the stock market is the accuracy of the results and increasing the forecasting efficiency. Another challenge, which is a prerequisite for making decision and using the results of the forecast for profitability of transactions, is to forecast the trend of stock price movements in forecasting price. To overcome the mentioned challenges, this paper employs ensemble learning (EL) model using intelligence-based learners and metaheuristic optimization methods to maximize the improvement of forecasting performance. In addition, in order to consider the direction of price change in stock price forecasting, a two-stage structure is used. In the first stage, the next movement of the stock price (increase or decrease) is forecasted and its outcome is then employed to forecast the price in the second stage. In both stages, genetic algorithm (GA) and particle swarm optimization (PSO) technique are used to optimize the aggregation results of the base learners. The evaluation results of stock market dataset show that the proposed model has higher accuracy compared to other models used in the literature.

Short-sale constraints and stock price crash risk: Causal evidence from a natural experiment

We examine the relation between short-sale constraints and stock price crash risk. To establish causality, we take advantage of a regulatory change from the Securities and Exchange Commission (SEC)’s Regulation SHO pilot program, which temporarily lifted short-sale constraints for randomly designated stocks. Using Regulation SHO as a natural experiment setting in which to apply a difference-in-differences research design, we find that the lifting of short-sale constraints leads to a significant decrease in stock price crash risk. We further investigate the possible underlying mechanisms through which short-sale constraints affect stock price crash risk. We provide evidence suggesting that lifting of short-sale constraints reduces crash risk by constraining managerial bad news hoarding and improving corporate investment efficiency. The results of our study shed new light on the cause of stock price crash risk as well as the roles that short sellers play in monitoring managerial disclosure strategies and real investment decisions.

Analysis of the relationship between innovation, stock market and economic growth in the case of China

The objective of this is study is to analyze the behavior and the relationship between the stock market and the macroeconomic developments, based on technology development, through the variables that influence these rates to China, under the hypothesis that a decrease in stock prices may reflect in bad news regarding to technological progress and long-term economic growth. As reference to the innovation question, the study considers The Global Innovation Index (GII) based in China's position note; for the economic growth question, the reference is the Chinese real GDP; and for the capital market question, it is considered the Chinese stock exchange index (SSE Composite). For the analysis and correlation of these variables it was used the calculation of the Pearson's correlation coefficient “r”. The results suggest that the performance of the capital market cannot be an economic indicator for China's case, not presenting evidence that its performance is related to those of the real economy and the technological innovation.

ADAKAH PENGARUH FREE FLOAT TERHADAP PELAKU PASAR SAHAM DI INDONESIA?

Indonesian Stock Exchange has released free float adjustment index on November 2018 and composite index declined about 3,2%. Free Float will be an additional reference for the exchange in compiling an index which previously used market capitalization and total transaction value. This study examines the average daily price changes of LQ45 stocks within 60 days before and after the announcement. The daily closing price changes are calculated as a percentage increase or decrease of stock prices according to the previous day, then, the average value is calculated for all the trading days. There are differences in the average stock price changes 60 days before and after the announcement date. After dropped, the price rebound and make a new higher high price two days after the announcement. Bank BCA, Bank Mandiri, Bank BRI, Bank BNI, Astra International and Telkom are companies which increase the weight of the free float meanwhile Unilever and H.M Sampoerna were the opposite.

Chasing investor sentiment in stock market

In this paper, we present a sentiment asset pricing model with the Chasers, who believe investor sentiment has significant impact on asset pricing and tend to chase investor sentiment, optimally inferring investor sentiment from asset price. We find that the impact of investor sentiment on asset price depends not only on the number of the Sentiment investors but also on the number of the Chasers; and the Chasers can amplify the impact of investor sentiment on asset price. If investor sentiment is optimistic, the Chasers would increase stock price; and if investor sentiment is pessimistic, the Chasers would decrease stock price. Moreover, we demonstrate that the Chasers can also increase stock price volatility. The model could offer a partial explanation to the phenomenon of overvaluation, undervaluation and excess volatility.

The Influence of Fundamental Analysis on Stock Prices: The Case of Food and Beverage Industries

The objective of this study is to determine the effect of fundamental factors, like Debt to Equity Ratio (DER), Return on Assets (ROA), Current Ratio (CR), Price Earnings Ratio (PER), and Total Assets Turnover (TATO), towards stock prices. The object of this research is the food and beverage industries listed on the Indonesia Stock Exchange in the period 2012 - 2015. The study used secondary data obtained from the Indonesia Stock Exchange website (www.idx.co.id). The research design used is causal research methods and the sampling technique used is purposive sampling method. There were 11 out of 17 companies that met the criteria during the four-year observation period. The data was analyzed by panel data regression analysis technique using three approaches - Common Effect, Fixed Effect, and Random Effect. Chow test model, Hausman test, and Lagrange Multiplier test were used for the model selection using F test and t-statistical tesst. The result of the study through the use of F tests indicated that the increase or decrease of stock prices are affected by ROA, CR, DER, TATO and PER. The result of the t-statistic test showed that ROA and TATO have a partial influence on the share price, whereas the DER, CR and PER variables have no affect on the stock price of food and beverage companies.

D-brane solutions under market panic

The relativistic quantum mechanic approach is used to develop stock market dynamics. The relativistic is conceptional here as the meaning of big external volatility or volatility shock on a financial market. We used a differential geometry approach with the parallel transport of prices to obtain a direct shift of the stock price movement. The prices are represented here as electrons with different spin orientation. Up and down orientations of the spin particle are likened here to an increase or a decrease of stock prices. The parallel transport of stock prices is enriched by Riemann curvature, which describes some arbitrage opportunities in the market. To solve the stock-price dynamics, we used the Dirac equation for bispinors on the spherical brane-world. We found out that when a spherical brane is abbreviated to the disk on the equator, we converge to the ideal behavior of financial market where Black–Scholes as well as semi-classical equations are sufficient. Full spherical brane-world scenarios can describe non-equilibrium market behavior where all arbitrage opportunities as well as transaction costs are taken into account. Real application of the model to the option pricing was done. The model developed in this paper brings quantitative different results of option pricing dynamics in the case of nonzero Riemann curvature.

Option prices and stock market momentum: evidence from China

Option prices tend to be correlated to past stock market returns due to market imperfections. We unprecedentedly examine this issue on the SSE 50 ETF option in the Chinese derivatives market. To measure the price pressure in the options market, we construct an implied volatility spread based on pairs of the SSE 50 ETF option with identical expiration dates and strike prices. By regressing the implied volatility spread on past stock returns, we find that past stock returns exert a strong influence on the pricing of index options. Specifically, we find that SSE 50 ETF calls are significantly overvalued relative to SSE 50 ETF puts after stock price increases and the reverse is also true after the stock price decreases. Moreover, we validate the momentum effects in the underlying stock market to be responsible for the price pressure. These findings are both economically and statistically significant and have important implications.

The impact of bond rating downgrades on common stock prices in China

In this paper, we examine how bond rating downgrades affect common stock prices in China by using the data of all the bond rating downgrades in China during the period from 1 January 2008 to 30 May 2016. To provide empirical evidence for the theory in Goh and Ederington (1993), we classify the samples according to the downgrade reasons and the bonds’ time to maturity and examine the abnormal returns of each group in different windows. The empirical results show that the downgrades due to deteriorating financial prospects have a negative effect on stock prices and that this effect lags behind. The downgrades due to leverage changes have no significant effect on stock prices. Meanwhile, the variation in the decrease in stock prices due to rating downgrades of bonds that will mature within three years is significantly larger than that of those which will mature after more than three years.

How money illusions and heterogeneous beliefs affect asset prices

We develop a dynamic asset pricing model with two investors with money illusions and heterogeneous beliefs about some aspects of the economy. The model is tractable and delivers closed forms for all equilibrium quantities. The study shows that money illusion leads the nominal shock risk to generate spillover effects on the real side of the economy and affects all equilibrium quantities, even without inflation disagreement. We find that bond yields increase, but the stock price decreases, as money illusion increases. Bond yield and stock price volatilities increase with fundamental disagreement, while the latter decreases with inflation disagreement. We also discover that the stock risk premium is inverse-U shaped as inflation disagreement increases. Moreover, we find that the optimistic investor holds positions in real bonds and stocks, and shorts the nominal bond to hedge against the risk of market changes, which is in line with the pessimistic investor’s beliefs.

Competitors’ stock price reactions in response to private equity placements: evidence from a transitional economy

This paper examines whether information conveyed by private equity placement decisions transfers to non-applying companies within the same industry. In particular, it investigates the impact of a company’s announcements of the application for, withdrawal, rejection, approval and completion of private equity placement, while examining the cross-sectional differences of the market performance of their industry counterparts, both in the short- and long-term. It was found that an intra-industry reaction exists; competitors experience a decrease in stock prices in response to the announcement of the application for, approval and completion of private equity placement and an increase in stock prices around the announcement of the withdrawal or rejection of applications. Further, it was found that competitors experience a decrease in their long-term stock performance following private placements. A higher discount on private equity placement is detrimental for private equity (P.E.) issuing companies in the long-term. This study, therefore, provides evidence of the existence of a contagion effect in the long-term while a competitive effect dominates in the short-term.

Can Analyst Coverage Reduce Stock Price Crash Risk?—Evidence from China

Utilizing the date from 2010 to 2016 in China stock market, this paper studies the relation between analyst coverage and stock price crash risk. The result shows that security analyst coverage increases the risk of stock crash. When further dividing the analysts into star analysts and non-star analysts, the research found that the star analyst coverage can decrease stock price crash risk, and non-star analyst coverage can increase the stock price crash risk. And with the rise of star analyst ratio, the stock price crash risk will be lower.

Principal–principal agency problems and stock price crash risk: Evidence from the split‐share structure reform in China

AbstractManuscript TypeEmpiricalResearch Question/IssueOn April 2005, the China Securities Regulatory Commission (CSRC) launched the split‐share structure reform to mitigate principal–principal agency problems. Using the reform as an exogenous shock, we examine the impact of principal–principal agency problems on stock price crash risk. Specifically, this study attempts to answer two questions: (1) Does the split‐share structure reform in China decrease stock price crash risk? (2) Is the above effect induced by the mitigation of principal–principal agency problems?Research Findings/InsightsWe find that the reform induces a significant decrease in crash risk after controlling for other predictors of crash risk, and this effect is more pronounced in firms with a higher proportion of shares held by controlling shareholders. Moreover, we find that the negative impact of the reform on stock price crash risk is more pronounced in firms with a high level of tunneling prior to the reform, which indicates that reform induces less tunneling, and adversely affects crash risk.Theoretical/Academic ImplicationsThis study contributes to the literature in two ways. First, this study constitutes the first effort to explore the determinants of stock price crash risk from the perspective of principal–principal agency problems. Second, this study enriches the growing literature on the economic consequences of the split‐share structure reform in China.Practitioner/Policy ImplicationsWe draw two important implications from our results. First, our findings highlight that regulatory intervention is an important way to enhance corporate governance. This is particularly beneficial in China, a transitional economy which may lag in terms of general protection of investors and information disclosure. Second, this study also confirms that minority shareholders and listed firms benefit from the reform. Both are crucial to the healthy development of the capital market in China.

Claim Character and Class Conflict in Securities Litigation

The loss suffered by buyers in a typical securities fraud class action may come from several distinct sources including lower expected return or a higher cost of capital or one-time outflows of cash or a combination thereof, all of which are quickly impounded in market price even though prospective. Under federal securities law (Rule 10b-5), a buyer may recover the entire difference between purchase price and market price after correction. But some of this loss should properly give rise to a derivative claim on behalf of the corporation (and all stockholders) rather than a direct claim on behalf of a buyer class. In addition, some sources of stock price decrease are losses that would happen even in the absence of fraud. Thus, for buyers to recover for such a loss is to restore them to a better position than if there had been no fraud, resulting in over-deterrence. Moreover, investors can protect themselves against such losses through diversification. In contrast, the extra loss that derives from fraud or misconduct – loss over and above the loss from bad business luck – cannot be diversified away because such losses can result only in a decrease in stock price. Although stock price may sometimes increase because of good business luck, there is no potential for gain from the absence of fraud or misconduct. The bottom line is that the only losses that really matter are those that are non diversifiable – which losses also happen to be derivative. The question is why the courts have failed to characterize investor claims properly. The answer is a combination of historical factors, conflicts of interest, and market failures. The most promising solution seems to be for index funds acting on behalf of investors to intervene to oppose certification. Index investors who trade infrequently – and only for purposes of portfolio balancing – lose more as holders (because the corporation pays) than they recover as buyers. They should oppose a direct class action remedy in favor of a derivative remedy by which the corporation recovers to the extent of actionable losses that give rise to a decrease in stock price. The same is true for diversified investors in general who comprise a large majority of investors. And because it is impossible to sort out investors who would thus oppose a direct buyer remedy from those who may favor such a remedy, the courts should decline to certify securities fraud class actions on grounds of class conflict. Rather, such actions should be recast as derivative actions, which constitute a superior form of class remedy under established rules of civil procedure, because they benefit all stockholders proportionally and only for non-diversifiable losses.

When is good news bad and vice versa? The Fortune rankings of America's most admired companies

We use increases and decreases in the ranking scores of Fortune's Most Admired Companies to test the proposition that media shocks can increase (decrease) the value of a manager's reputational capital and, thus, enhance (diminish) his power to extract corporate resources for private benefit at the expense of shareholders. Consistent with the proposition increases (decreases) in scores are associated with stock price decreases (increases). And, CEOs whose firms experience increases (reductions) in scores experience increases (reductions) in compensation and in job tenure, and their firms undertake more (fewer) acquisitions and the acquisitions are less (more) value increasing.

Corporate Pyramids and Stock Price Crash Risk: Evidence from China

Abstract This paper examines the impact of corporate pyramids on the stock price crash risk of listed firms in China. Our results show that, first, the pyramidal layer of state-owned enterprises (SOEs) can reduce stock price crash risk through the three channels of improving financial statement transparency, increasing accounting conservatism, and decreasing overinvestment. Second, the greater the related party transactions, the weaker the negative relation between the pyramidal layer and crash risk, while this negative relation is strengthened by Hong Kong cross-listing. Further analysis shows that the corporate pyramidal layer of SOEs can also decrease stock price synchronicity. For non-state-owned enterprises (NSOEs), we find that there is an inverse U-shaped relationship between the corporate pyramidal layer, crash risk, and stock price synchronicity. These findings have important policy implications in promoting the sound and stable development of the capital market in China.

New evidence on stock market reaction to dividend announcements in India

We revisit the information content of dividend announcements in India from 2012 to 2014 in a unique market setting which involves the introduction of Company’s Act 2013. We find that announcement of increase in dividend lead to increase in stock prices, while the dividend decrease announcements are associated with decrease in stock prices. Firms that announce no change in dividends, experience insignificant negative returns around the event date. Our results contradict the tax-signaling model, which argues that higher taxes on dividends than capital gains are necessary for dividend announcements to be informative. The abnormal returns increase post the introduction of Company’s Act 2013. The results of the firm-specific panel regressions indicate that the information content of dividends has a non-linear relation with the founder ownership consistent with the monitoring and rent extraction hypotheses.

The Information in Credit Default Swap Volume

This article examines the informational content of credit default swap (CDS) net notional for future stock and CDS prices. Using the information on CDS contracts registered in DTCC, a clearinghouse, I construct CDS-to-debt ratios from net notional, that is, the sum of net positive positions of all market participants, and total outstanding debt issued by the reference entity. Unlike the ratio using the sum of all outstanding CDS contracts, this ratio directly indicates how much of debt is insured with CDS and therefore, is a natural measure of investors’ concern on a credit event of the reference entity. Empirically, I find crosssectional evidence that the current increase in CDS-to-debt ratios can predict a decrease in stock prices and an increase in CDS premia of the reference firms in the next week. Greater predictability for firms with investment grade credit ratings or low CDS-to-debt ratios suggests that investors pay more attention to firms in good credit conditions than those regarded as junk or already insured considerably with CDS.

Comparison analysis of copula-based and Markowitz portfolio methods

In this paper, the objects of study are securities (stocks) and portfolio. The main problem of the study is portfolio optimization. One of the first portfolio methods was presented by Henry Markowitz with his Modern Portfolio Theory (MPT), which is considered as a classic and the most popular one in modern investing. MPT provides the following assumptions: variance is used as a measure of risk, portfolio stock returns distribution is considered as a normal one. However, these assumptions do not represent real processes in the modern economy. First, in terms of modern volatile economy portfolio stock returns distribution curve has heavy tails, which is not typical for normal distribution. Secondly, in case of variance as a measure of risk probability of extreme events, such as a simultaneous increase or decrease of stock prices, are not taken into account. So Markowitz method no longer meets the requirements of the modern financial market and there is a need to study alternative and more valid portfolio methods. In this paper, copula-based approach is considered in contrast to the classical one. In the method assumption about the normality of stock returns is rejected and Value - at - Risk ( VaR ) is considered as a valid risk measure. VaR assessment is based on an information about random distribution. Since the normality assumption was rejected, to assess portfolio stock returns distribution need to be defined. To do these copula-functions was used. Stochastic optimization problem using VaR was solved with a modified Nelder-Mead method. As a result of the dynamic optimization return of copula-based portfolio for 2015 was 12,1 % of the initial investment sum, while the portfolio, constructed with the classical method, showed losses of 4,1 %. Since in copula-based approach incorrect normality assumption is rejected and a valid risk measure is chosen , copula-based portfolio is much more effective than the Markowitz one.

The leverage effect puzzle: the case of European sovereign credit default swap market

One of the stylized facts about the behaviour of time series is that their volatility exhibits asymmetrical responses to good and bad news. In the case of stock markets, volatility seems to rise when the stock price decreases and fall when the stock price increases. This so-called “leverage effect” was first described by Black (Proceedings of the 1976 meeting of the business and economic statistics section, pp 177–181, 1976). The concept is not new and has already been comprehensively studied and implemented in many volatility models (GARCH and SV) in the form of an additional parameter in the volatility equation. However, there is no study or a theoretical explanation of the leverage effect in sovereign credit default swap spreads (hereinafter: sCDS). In this article, we discuss the possible behaviour of sCDS volatility and explain it by way of reference to the Prospect Theory by Kahneman and Tversky (Econometrica 47(2):263–292, 1979). We estimate a series of stochastic volatility models with the leverage effect, proposed by Yu (J Econom 127(2):165–178, 2005). In this model, the “leverage effect” is, in fact, the same as a coefficient of the correlation between the current return of an asset and its expected future volatility. We show that the effect does exist and differs across markets. As far as the safe European markets are concerned, the parameter is negative; in the case of extremely risky economies—it is positive. In markets of medium risk the effect varies depending on the relationship between the perceived risk and the value of the sCDS premium.