Event Study Approach Research Articles

A breath of fresh air: Coal power plant closures and health in China

This study provides the first causal evaluation of the impact of coal power plant closures on health in China using nationally representative survey data. Based on the linkage between the staggered shutdowns of 13 coal power plants between 2000 and 2015 and the China Health and Nutrition Survey (CHNS) data, we adopt the new event study approach by Sun and Abraham (2021) to compare changes in overall health statuses for residents living downwind of coal power plants (treated) with those living upwind (control), before and after plant closures. We find that incidences of sickness are reduced by 7 percentage points or 0.2 standard deviations 5–9 years after the closure. The result is robust to a host of robustness checks. Further analyses reveal that the health benefits are concentrated on older adults, rural areas, and historically low pollution regions. By considering several potential channels, we find that plant shutdowns have decreased incidences of overweight and hypertension, increased physical activity levels, and generated a wealth effect resulting from increased housing prices.

The Consequences of Mergers and Acquisitions on the Value of Stocks Performance in India’s Banking Sector

Mergers & Acquisitions are one of the most successful scaling up and company development strategies. Despite being largely acknowledged in developed economies, these strategies are commonly employed in developing countries like India. The event study approach is applied in this study to assess the consequences of Mergers & Acquisitions (M&A) on the value of stocks performance in India’s banking sector from 2013 to 2020. The market study approach has used to determine the Abnormal return (AR) and Cumulative abnormal return (CAR) in order to analyze how the phenomena affected share prices prior to and following the occurrence. Event window has been used for this purpose for 81 days (40, 40), whereas estimate window is 200 days. The findings show divergent results on the M&A activity influence the stock price performance. Research findings reveal that while few banks saw positive AR and CAR following the M&A, the bulk of banks experienced negative returns. Overall, the results reveal that the market’s response to the recurrence of M&As in India’s banking sector has unfavorable. Findings may be useful in providing managers and investors with new views while making investment-related decisions.

Auditing decentralized finance

Decentralized finance (DeFi), which executes financial transactions using blockchain without an intermediary, has attracted over US$250 billion in total value locked (TVL) at its peak. However, little is known about how DeFi protocols assure users of the safety of their investments. This paper provides the first empirical evidence on DeFi audit services that check and verify the smart contracts underlying these protocols. Using data on 316 of the largest protocols, we find that those vetted by more smart contract auditors and by higher quality auditors have higher TVL and that these protocols have higher market capitalization (native token values). Using an event study approach, we document that TVL and token values significantly increase after a protocol's first audit, especially those involving a high-quality auditor. We also find that protocols with more auditors and higher audit quality exhibit a smaller drop in TVL and token values after the collapse of the TerraUSD stablecoin, which reduced aggregate DeFi TVL by almost 65%. Overall, our findings suggest that DeFi users and investors perceive audits as providing assurance regarding the safety of their deposits and investments.

Does banning cryptocurrencies affect stock markets?

PurposeThis paper aims to investigate the impact of banning cryptocurrencies on stock markets.Design/methodology/approachThe paper uses an event study approach and data from stock market indices in nine countries that imposed a ban. It uses the constant mean model and the market model, with two different benchmarks for global returns, to analyze if any of the stock indices show abnormal returns on or around the announcement of a cryptocurrency ban.FindingsThe analysis shows that banning cryptocurrencies did not affect the returns of stock markets in any of the countries studied, indicating that the cryptocurrency market and stock markets are decoupled from each other, or the ban was not effectively implemented.Originality/valueTo the best of the author’s knowledge, this paper is the first to explore the potential spillover effect of a cryptocurrency ban on stock markets. It also bridges two strands of literature: the relationship between cryptocurrencies and traditional assets, and the impact of cryptocurrency regulation on their returns.

The valuation effect of going International: evidence from QDII in China

ABSTRACT This paper attempts to evaluate the valuation effect of deregulation policy on capital outflows by an event study approach. Using the policy announcement of Qualified Domestic Institutional Investor (QDII) and Bond Connect in China, we find a short-term valuation effect that the stock market responds negatively to the deregulation on capital outflows and firm’s size could act as a shield to defend this shock. Moreover, the financially constrained firms are more negatively affected by this policy shock, suggesting that financial vulnerability is an important force driving down the stock valuation. Finally, both the quality of corporate governance and bureaucratic quality of local government could help firms to avoid valuation loss from this policy shock especially those with tight financial constraints.

The impact of ultra-fast broadband on labor income: an event study approach

ABSTRACT We investigate the impact of ultra-fast broadband connections on labor income and employment. We use panel data for Italian municipalities for the period 2012–2019 and we exploit the staggered roll-out of ultra-fast broadband started in 2015. Through an event study approach, we find evidence of endogeneity between ultra-fast broadband roll-out and labor market outcomes. To identify causal relationships, we use income from pensions to implement the estimator developed by [Freyaldenhoven, S., C. Hansen, and J. M. Shapiro. 2019. “Pre-Event Trends in the Panel Event-Study Design.” American Economic Review 109 (9): 3307–3338. https://doi.org/10.1257/aer.20180609.]. We find that access to ultra-fast broadband increases the income of the self-employed by 1.3% but has no impact on workers. Such an effect is mostly driven by a rise in self-employed workers, which is concentrated in urban areas, and in municipalities at the top and bottom quartiles of labor income.

When giants fall: Tracing the ripple effects of Silicon Valley Bank (SVB) collapse on global financial markets

Using an event study approach, we examine how the forex, metal, energy, and cryptocurrency markets responded to the SVB collapse. We observe that the forex and metal markets respond positively on event and post-event days. In contrast, the cryptocurrency market reacts negatively but generates positive abnormal returns, indicating that investors may seek refuge in these purported safe-havens. However, the energy market responded adversely to the event, and the trend continued in the aftermath. The study advocates the need for monitoring and minimizing financial contagion risk due to the increased interconnectedness of the financial markets. Our findings highlight the perilous consequences of the SVB collapse, as it triggered contagious effects that may spread throughout the global financial markets. Therefore, investors and financial institutions must diversify their portfolios across various asset classes, which can help mitigate the risks of such events.

Analysis of abnormal returns and trading volume activity before and after the announcement of the implementation of new normal

The announcement of the New Normal implementation on June 1, 2020 is anticipated to serve as a pivotal moment poised to revitalize the previously sluggish Indonesian Capital Market during the COVID-19 Pandemic. The purpose of this study was to see whether there were differences in abnormal returns and trading volume activity between before and after the announcement of the implementation of the New Normal in Indonesia. This type of research is comparative quantitative research with an event study approach in hotel, restaurant and tourism companies. The population in this research is all company shares listed on the Indonesian capital market until 2020, totaling 711 company shares. The sample selection used purposive sampling, resulting in a research sample of 37 company shares. The observation period was carried out for 15 days, namely 7 days before, 7 days after, and 1 day of the New Normal event in Indonesia. The analysis technique uses Descriptive Statistics Test, Normality Test and Hypothesis Test. The results of the study show that there is no significant difference in abnormal returns and trading volume activity between before and after the announcement of the implementation of the New Normal in Indonesia. This proves that there is still information asymmetry between market participants regarding the announcement of the implementation of the New Normal in Indonesia which causes the market not to react to this event.

Market Reaction to the Covid-19 Pandemic: Evidence from Countries in the Asia Pacific

The covid-19 pandemic spread rapidly in the Asia Pacific region, causing economic losses, exacerbating market volatility, and disrupting economic chains in Asia Pacific countries. This study aims to analyze the differences in capital market reactions before and after the announcement of covid-19 in the Asia Pacific Region. This study uses an event study approach using a variable stock price index, return, trading volume, and exchange rate. The research sample was 11 stock exchanges in Asia Pacific countries with purposive sampling techniques. Data testing using the data normality test and two average difference tests using a Paired Sample T-Test for normally distributed data and the Wilcoxon Singed Rank-Test test for data that is not normally distributed. The results showed that (1) there are differences in stock price indices before and after the announcement of covid-19 cases in Indonesia, Malaysia, Singapore, Mexico, Taiwan, Hong Kong, and New Zealand. Meanwhile, Thailand, Australia, Japan, and South Korea showed no differences. (2) there are differences in returns during covid-19 cases in Malaysia and Taiwan. While Indonesia, Singapore, Thailand, Australia, Japan, South Korea, New Zealand, Mexico, and Hong Kong showed no difference. (3) There are differences in stock trading volumes during covid-19 cases in Malaysia, Australia, Mexico, and Hong Kong. Meanwhile, Indonesia, Singapore, Thailand, Japan, South Korea, New Zealand, and Taiwan showed no difference. (4) There are differences in exchange rates during covid-19 cases in Indonesia, Malaysia, Singapore, Thailand, Australia, South Korea, New Zealand, Taiwan, and Hong Kong. While in Japan, it shows no difference.

MISLEADING OR BENEFICIAL? ASSESSING THE EXPLOITATION POTENTIAL OF STOCK BUYBACK ANNOUNCEMENTS IN THE MALAYSIAN STOCK MARKET

In the traditional sense, stock buyback announcements are generally perceived as advantageous news. However, with the evolution of the capital market, some scholars argue that such declarations possess the potential for exploitation as a means to artificially inflate stock prices, thereby deceiving investors. Consequently, within the framework of the Efficient Market Hypothesis and the Theory of Asymmetric Information, we employed an event study approach to empirically investigate 30 listed companies in Malaysia that announced stock buybacks in the before June 2022. To fortify the robustness of our research findings, we employed Market Model and the Fama-French Three-Factor Model to estimate Average Abnormal Returns and Cumulative Average Abnormal Returns. The outcomes indicate that stock buyback announcements are still regarded as favorable news in the Malaysian stock market, bestowing investors with significant positive average cumulative abnormal returns. Nevertheless, the Malaysian capital market may witness premature leakage of stock buyback information, thereby accentuating the existence of information asymmetry. We contend that corporate leadership can harness stock buyback announcements as a mechanism to stabilize stock prices and infuse confidence in investors. Concurrently, market regulators should augment transparency and regulatory measures to ensure fairness among all market participants.

Life satisfaction and unemployment—The role of gender attitudes and work identity

AbstractUnemployment has a strong negative effect on subjective well‐being, but the effect varies across groups. Using an event study approach, we explore the sources of heterogeneity in the effect of the transition into unemployment on life satisfaction, focusing on work identity and gender role attitudes. All experience a loss of life satisfaction when they become unemployed, but we find greater heterogeneity of experience among men: the losses in life satisfaction are greater if they hold egalitarian rather than traditional gender role attitudes, and if they have strong rather than weak work identity. Among women, those holding traditional gender role attitudes experience larger losses. We discuss possible reasons for these results.

Covid-19 on stock market performance: evidence from Italy

This paper has explored the impact of the Covid-19 pandemic on the Italian stock market at an industry level, analysing companies listed in the two major stock indexes: MIB 30 and STAR. Using daily firm-level stock prices (from December 2019, until October 31, 2020), we employed an event-study approach to analyse short-term stock market reactions, considering different pandemic windows period. Results showed that stocks reacted negatively to the announcement of the first case in the country, with deep reversal effects when the country was locked down. Monetary policy measures showed potential to ease stock markets: the announcement of Next Generation Agreement highlights the reversed role of Market Capitalization. Firm-specific variables were included in order to make inferences about firm characteristics that emerged as value drivers during the pandemic: in the first lockdown period, a greater company’s capitalization ensured a greater resilience to the Covid-19 shock. Reversals at both an industry and a company level are observed. Results allow to understand how an outbreak of contagious disease affects stock returns in various sectors, helping investors to develop trading strategies to protect their wealth from future epidemics and providing inputs into the assessment of economic vulnerability to pandemic crises.

Don’t go on holiday in August! Market reaction to an unexpected windfall tax on banks

Using an event study approach, this paper investigates the stock market reaction to the unexpected announcement of a windfall tax on banks’ extra profits. We show that investors negatively perceive the introduction of the tax, with more pronounced reactions for banks expected to be more highly burdened. This evidence is corroborated when we investigate the cross-sectional determinants of banks’ returns and cumulative abnormal returns. Overall, the results suggest that investors negatively price excess profits taxes and contribute to our understanding of how stock markets respond to tax policy changes.

Reaction of Indian Stock Market to Outbreak of COVID-19: An Empirical Analysis of Extreme Inter-day Movements

The contagious COVID-19 pandemic has been considered a massive global crisis since World War II and has disturbed business and economic activities across the globe. The current study examined the reaction of the stock market’s to the outbreak of COVID-19, considering the extreme inter-day movements in the Indian stock market. The extreme inter-day movements in S&P CNX Nifty-50 have been identified during the study period from January 2020 to December 2021 and further classified into decline and gain events based on positive and negative announcements related to COVID-19. The study utilized an event study approach and panel regression for empirical investigation. The results of the event study analysis illustrate that the significant abnormal loss ranges from 12.86% to 2.47% for the major decline events and significant abnormal return from 8.43% to 3.23% for the gain events. The regression analysis results showed that real return and Central Bank Policy rate have a considerable impact on the abnormal returns during COVID-19. The study’s findings are helpful to policy implications that identified the need to focus on financial education and strengthen the health and finance-related policies to deal with such pandemics in the future.

In search of a safe haven in times of turbulence: Effects of First Republic Bank failure on global asset markets

The failure of First Republic Bank (FRB) – the largest bankruptcy in the US banking system since the GFC – may send chilling effects through different asset markets in the US and even worldwide. This paper aims to clarify the effects of FRB failure on several assets and figure out potential safe havens for investors during the 2023 US banking turmoil. Results from the event study approach reveal that eleven particular assets are relatively safe during the current turbulence. Several important implications are made for investors, portfolio managers, and policymakers.

Uncertain tone, asset volatility and credit default swap spreads

We examine the relationship between uncertain linguistic tone and credit default swap (CDS) spreads. Using an event study approach, we first show that uncertain linguistic tone in 10-Q/K filings is positively associated with CDS spread changes incremental to positive and negative tone and incremental to the response implied by equity market reactions to the same information. We further demonstrate that the relationship of uncertain tone to CDS spreads manifests largely through its impact on asset volatility. We show that this effect is driven by firms with high leverage and is stronger among firms with shorter relative to longer maturities. Our findings contribute to growing research into credit market reactions to non-quantitative information by demonstrating a positive relationship between credit market responses and uncertainty disclosure language, and that this relationship is mediated by investors’ implied asset volatility estimates.

Do online message boards convey cryptocurrency-specific information?

We investigate whether internet message boards convey cryptocurrency-specific information. Using an event study approach and choosing idiosyncratic volatility and price synchronicity as the proxies for cryptocurrency-specific return variation, we find that: idiosyncratic volatility (price synchronicity) significantly decreases (increases) after the message board opening events. In addition, the reverse changing trends of idiosyncratic volatility and price synchronicity confirm a cryptocurrency-specific information diffusion effect, in which increases of information channels lead to more information being conveyed, hence improving the information efficiency of the cryptocurrency market. Findings are robust to alternative model specifications, alternative online message boards, placebo testing, and a staggered difference-in-differences approach. These findings should be of great interest to practitioner in quantitative trading as well as to scholars interested in asset pricing.

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.

Carbon neutral announcements and Chinese stock market reaction: a supply chain network-based perspective

PurposeThis study aims to explore the impact of carbon neutral announcements on “stock market value” of publicly listed companies in China.Design/methodology/approachThe event study approach is adopted. Market, market-adjusted, Carhart four-factor model and a cross-sectional regression model are employed to examine the impacts of carbon neutral announcements on “stock market value” of Chinese companies based on data from 188 carbon neutral announcements.FindingsCarbon neutral announcements positively impact Chinese shareholder value. Carbon neutral announcements at the strategic level have a more positive and significant impact on Chinese stock market value. Innovative carbon neutral announcements do not significantly cause Chinese stock market reactions. Companies have more positive and significant stock market reactions when the companies make carbon neutral announcements that reflect high supply chain network resilience and heterogeneity and strong supply chain network relationships.Practical implicationsThe findings uncover the business value of carbon neutral activities and provide operations managers in developing countries insights into how to improve enterprises' market value by actively implementing carbon neutral activities.Originality/valueThis paper is the first trial to apply an event study to examine the relationship between carbon neutral announcements and Chinese stock market value from the perspective of announcement level and type and supply chain networks. This paper introduces corporate reputation theory and enriches the application of corporate reputation theory in the field of low-carbon environmental protections and supply chains.

The Reactive Strategy During the COVID-19 Crisis: A New String to the Bow of CSR

This study aims to study the impact of the COVID-19 outbreak on stock market performance and determine whether firms with a reactive corporate social responsibility (CSR) strategy (compared to those with a proactive and strategic strategy) were less affected. Focusing on a sample of 217 French firms, the event study approach is applied to examine change in the stock prices of socially responsible firms at the announcement of COVID-19 as a pandemic. The results show that stock prices dropped significantly as a reaction to the COVID-19 outbreak, particularly for the proactive CSR group compared to the reactive CSR group. The results also show that the reactive CSR group resisted more in the longer term. Furthermore, an investment strategy aiming at buying reactive CSR firms and or selling proactive ones would have earned abnormal returns. However, the investment strategy is not fruitful when we consider reactive CSR stocks and strategic firms.