Financial Market Reactions Research Articles

Firms Entangled in Geopolitical Conflicts: Evidence from the Russia-Ukraine War

We examine the reactions of US-based multinationals and subsequent financial market reactions to Russia’s invasion of Ukraine in February 2022. The multinationals’ firm-level decisions range from clean exits from the Russian market, all the way to ‘digging in’ as if the war never happened. Findings show that, in the short-term, markets favour ‘middle ground’ decisions which balance shareholder interests with regulatory and ethical concerns. This is manifest through those firms taking extreme decisions, on either end of the spectrum, experiencing more negative returns. In the longer term, however, investor ethical concerns and other considerations dominate such that firms announcing clean breaks incur lower losses compared to their peers. In other words, sitting on the fence and playing both sides does not pay off for long. We also show interesting differences in investor reactions between two major non-US markets: China − a Russia-leaning country − vs India − a neutral country. While Indian investors behave largely similar to US investors, Chinese investors do not significantly punish firms that stay put in Russia. We re-examine the situation one year into the war and show that markets reward a Russia-opposing corporate position in the longer term.

A Study and Analysis on Recent Mergers in India

This research paper aims to provide a comprehensive study and analysis of recent merger and demerger activities in India. It examines the motivations, strategies, and impacts of mergers and demergers on the Indian corporate landscape. Through a detailed analysis of recent case studies, the paper delves into the key factors driving these corporate restructuring activities, including regulatory changes, market dynamics, and strategic imperatives. Additionally, it evaluates the financial performance, market reactions, and implications for stakeholders involved in such transactions. The research contributes to the understanding of the merger and demerger trends in India, offering insights into the evolving corporate strategies and their implications for the Indian economy. Furthermore, it explores the legal and regulatory framework surrounding mergers and demergers, providing a holistic view of the process and its challenges.

Evolution of COVID-19 Impact on Russian Stock Market: Panic Effect

Over the past few years, many research papers have referred to stock market volatility in relation to investor attention and sentiment and our article adds to the current literature on financial market reactions to the economic consequences of COVID-19. An event such as an outbreak of an infectious disease causes a negative change in investor sentiment, which strongly influences their investment decisions and, consequently, stock market prices. The subject of the study is the mutual influence of stock market characteristics and market sentiment, during a COVID-19 pandemic crisis. The purpose of the study is to provide empirical support for the hypothesis of indirect impact of uncertainty and panic under the COVID-19 pandemic on the dynamics of the stock market in Russia. The World Health Organization and experts forecast that the world will face more than one crisis related to the spread of infectious diseases in the future, so understanding the mechanisms of mutual influence of sentiment and financial markets remains relevant. In this study, we take a novel approach to deriving an indicator for panic that has not been used before. We perform econometric modeling using a Vector Autoregressive Model (VAR) and a Vector Error Correction Model (VECM), which allows us to describe in the model not only the long-term equilibrium but also the dynamics towards it. As a result, we got consistent and efficient estimates of the long-term and short-term effects of panic and mortality rates on the volatility of the RTS stock index and found that the market reaction to COVID-19 changed as the pandemic spread: the effects of uncertainty and panic, while having a significant impact at the beginning of the crisis, faded away. The conclusions obtained in the analysis of the Russian stock market dynamics coincide with those obtained by other authors in their analysis of markets in other countries over a similar period.

The Impact of Federal Reserve Interest Hike: Currency, Stock and Bond Market

The paper investigates the consequences of interest rate hikes initiated by the Federal Reserve on various financial markets. This comprehensive analysis examines the relationships between interest rate changes and their effects on currency, stock, and bond markets, which also discuss the potential scenario or solutions in respond to the rate hike. By analyzing data from different regions of the world, the paper discusses how these monetary policy decisions influence market dynamics, investor sentiment, and overall economy. Federal Reserve raising interest rate has impacted the world from various aspects, which each’s country government needs to plan strategically to respond to the impact toward currency, stock, and bond market. The findings presented in this paper contribute valuable insights for policymakers, investors, and economists seeking a deeper understanding of the intricate interplay between central bank actions and financial market reactions, which it is important to understand the impacts and apply monetary policy in order to ensure economic stability.

Language of Markets: Analysing Monetary Policy Communication and Financial Market Reactions in West Africa

Language of Markets: Analysing Monetary Policy Communication and Financial Market Reactions in West Africa

Financial Market Reactions under the Russia-Ukraine Conflict-An Empirical Study Based on a Multi-factor Model

This paper takes advantage of the turbulent situation in eastern Ukraine to study and examine the correlation between war conflicts and stock yields, and to study the impact on the stock returns of A-share listed companies in China. The background of this article is that with the Russian Ministry of Defense announcing the withdrawal of troops stationed on the border between Russia and Ukraine, the crisis situation in eastern Ukraine has been cooling since October 2021, until February 2022, when Ukraine announced in civilian forces that it would evacuate the local population to Russia on the same day, while the situation in eastern Ukraine deteriorated, the local government banned foreign aircraft from entering the country, and declared Ukraine a state of war. This article constructs an index factor that measures the degree of war through the cryptocurrency market price fluctuation index and the cryptocurrency market price fluctuation index. In addition, a new war impact index factor is added to the basic three-factor model, and the explanatory performance of the new multi-factor model for the stock yield of listed companies is more in-depth and whether it is more explanatory than the three-factor model. The study will test whether the Russian-Ukrainian conflict will significantly affect equity returns in China's A-share market. Helps investors better describe the expected returns of a cross-sectional stock portfolio.

Do geopolitical interests affect how financial markets react to IMF programs?

We study the effect of geopolitics on short-term financial market reactions to IMF program approvals. If IMF programs are influenced by geopolitics, they may be less successful in stabilizing the economy. This could lead financial market participants to sell the country’s assets and thus reduce the catalytic effect of IMF programs. Using a monthly panel data set for about 100 IMF members covering 1993-2019, we find that if geopolitics are involved, the approval of a new IMF program increases risk aversion of financial market participants. To measure geopolitical interest, we focus on program approvals for temporary members of the United Nations Security Council (UNSC). We find that temporary UNSC members receiving an IMF program face higher bond and bill yields, depreciating exchange rates, and weaker stock market developments. This is consistent with investors reducing exposure to the country’s financial assets. Such a negative investor reaction is not observed for IMF program approvals for non-UNSC temporary members.

Central Bank Communications and Financial Market Reactions: A Text Mining Approach

Central Bank Communications and Financial Market Reactions: A Text Mining Approach

The trade war's impact on the financial market: Observations from the historical global trade war - the Smoot Hawley Tariff Act

This study examines financial market reactions to political events that led to the passage and repeal of the Smoot–Hawley Tariff Act (SHTA) from the perspective of political uncertainty. The events were a series of debates and votes held by the U.S. House and Senate before the SHTA was signed into law in 1930 and repealed in 1934. These events increase political uncertainty about trade policy, thereby creating a unique setting to measure the impact of political uncertainty on financial market reactions. We find that each event resulted in an average loss of 3.6% in the U.S. aggregate stock market over a [−1, +1] three-day window. Such negative returns were observed at the firm level. Moreover, we find that firms with higher tariff protection performed significantly better than firms with lower tariff protection on nonevent dates. Furthermore, we discovered that trading volumes were significantly higher on event dates than on nonevent dates. Stock return volatility was significantly higher during the entire debating and voting period than during the 12 months preceding its inception and 6 months following the SHTA's passage into law. However, higher tariff protection was associated with lower return volatility outside the event window. Our findings show that political uncertainty events commanded the risk premium.

Conciseness, Financial Disclosure, and Market Reaction: A Textual Analysis of Annual Reports in Listed Chinese Companies

The purpose of this study was to examine the relationship between the conciseness and complexity of financial disclosures and market reactions, using the annual reports of Chinese-listed B-share companies over the period 2006–2018. We employed a set of statistical methods that were derived from other fields, such as computational and event studies, in order to derive the English annual reports of Chinese-listed companies, as well as to obtain other key financial indicators from the CSMAR database. Markets react significantly to increased report length, which means that managers that present poor returns with manipulated financial reports could be hiding poor returns. Additionally, the findings of this study are robust to additional tests that use alternative proxies. Furthermore, the results of this paper reinforce the hypothesis that the readability of financial reports affects financial market response. The results indicate that more complex financial reports are correlated with lower current returns, and negatively affect the expectations of future returns. For the purposes of avoiding the effects of the coronavirus pandemic on the results, we utilized data up to 2018. In light of this circumstance, we recommend that future research be conducted that compares results from before and after the coronavirus pandemic. The findings of our study have important implications for regulators, managers, and investors. Investors should obtain relevant information through annual reports; therefore, the importance of style is less relevant. Managers should be encouraged to write their annual reports more concisely. This study concluded that these reports are significant outputs of firms, and are widely read by investors. The study also provides empirical evidence of market reactions that are associated with readability and earnings, as well as with surprise earnings; thus, the complexity of annual reports provided by a variety of investors, using computational and event analysis, should be reduced.

Effectiveness of Mergers and Acquisitions in Maltese Listed Companies: Financial Performance, Market Reactions and Shareholder Value

Purpose: W The objectives of the paper are to assess the effectiveness of mergers and acquisitions (M&A) in Maltese listed companies on acquirers’ financial performance, to examine the market reactions to M&A announcements and to seek to obtain further insights on the perceived value arising from M&A activity. Methodology: The methodology involved an Event Study on acquirers’ share price movements and semi-structured interviews with relevant company representatives and Maltese stockbrokers. Findings: The findings of the paper indicate that the few M&A cases wherein profitability -measured by growth in earnings before EBITDA - was enhanced and operational efficiency was improved took sound financing decisions despite facing challenging circumstances. The Maltese market was generally non-reactive within relatively short timeframes around announcements although with positive reactions within longer estimation periods. Furthermore, the perceived value by acquirers and stockbrokers varied considerably, yet such value was commonly attributed to effective due diligence and successful integration. The study therefore concludes that recent M& A activity in Malta has often been limited in its effectiveness towards enhancing shareholder value. Originality/Value: the paper provides both corporate managers and stockbrokers with insights into M&A activity particularly in a small-state market.

The shadow of sanctions: reputational risk, financial reintegration, and the political economy of sanctions relief

Financial sanctions have become a major component of American foreign policy. Since 2015, the number of blacklisted actors has nearly tripled, coinciding with US financial campaigns against Iran, North Korea, and Russia. This paper centers an under-examined paradox of this proliferation: the complexity of lifting financial sanctions. Indeed, successful sanctions regimes necessitate both sticks (punitive sanctions) and carrots (economic incentives). Yet financial sanctions often limit the economic benefits promised to target states, as banks and other financial institutions risk hefty material and reputational costs if they are to cooperate with previously sanctioned actors. Thus, while financial sanctions are effective at producing negative market reactions against a target, they can be hugely damaging if market actors do not cooperate with the lifting of sanctions. To capture this dynamic, this paper leverages process-tracing to observe financial market reactions to sanctions relief in three key cases—Iran (2010–2015), North Korea (2002–2007), and Libya (1996–2008). It finds that in each case, the presence or absence of US Treasury blacklisting corresponds to the post-sanction willingness of financial actors to extend sanctions relief to targeted states. In doing so, this study identifies “reputational risk” as the primary causal mechanism limiting a target’s reintegration into the global economy.

Voting Right Rotation, Behavior of Committee Members and Financial Market Reactions: Evidence from the U.S. Federal Open Market Committee

Which Federal Reserve Bank presidents vote on the U.S. monetary policy committee depends on a mechanical, yearly rotation scheme. Rotation is without exclusion: nonvoting presidents do attend and participate in the meetings of the committee. We test two hypotheses about the dependence of presidents' behavior on voting status. (i) Loss compensation: presidents compensate the loss of the right to vote with an increased use of speeches and contributions. (ii) Motivation: presidents complement the right to vote with an increased use of speeches and contributions. The evidence favors the motivation hypothesis. Also, in years that presidents vote, their speeches move financial markets less than in years they do not vote. We argue that this vote discount is consistent with presidents’ communication behavior.

A Vaccine for Volatility? Financial Market Reactions to the Arrival of the Covid-19 Vaccine

A Vaccine for Volatility? Financial Market Reactions to the Arrival of the Covid-19 Vaccine

Financial Market Reactions to the Russian Invasion of Ukraine

This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war, and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to prewar values.

Market-Based Monetary Policy Uncertainty

Abstract Uncertainty about future policy rates plays a crucial role for the transmission of monetary policy to financial markets. We demonstrate this using event studies of FOMC announcements and a new model-free uncertainty measure based on derivatives. Over the ‘FOMC uncertainty cycle’ announcements systematically resolve uncertainty, which then gradually ramps up again. Changes in monetary policy uncertainty around FOMC announcements—often due to forward guidance—have pronounced effects on asset prices that are distinct from the effects of conventional policy surprises. The level of uncertainty determines the magnitude of financial market reactions to surprises about the path of policy rates.

Voting Right Rotation, Behavior of Committee Members and Financial Market Reactions: Evidence from the U.S. Federal Open Market Committee

Voting Right Rotation, Behavior of Committee Members and Financial Market Reactions: Evidence from the U.S. Federal Open Market Committee

Voting right rotation, behavior of committee members and financial market reactions: Evidence from the U.S. Federal Open Market Committee

Whether Federal Reserve Bank presidents have the right to vote on the U.S. monetary policy committee depends on a mechanical, yearly rotation scheme. Rotation is without exclusion: also nonvoting presidents attend and participate in the meetings of the committee. Does voting status change behavior? We find that the data go against the hypothesis that without the voting right, presidents use their public speeches and their meeting interventions to compensate for the loss of formal influence; rather, they support the hypothesis that the voting right makes presidents more involved. We also find that speeches move financial markets less in years that presidents vote. We argue that these discounts are consistent with their communication behavior.

Political uncertainty and financial market reactions: A new test

Recent literature highlights the crucial role of understanding the mechanism between political uncertainty and financial market reactions. Along the lines of this topic, our study stresses a clear causal framework. Exploiting one unique natural experiment of the Taiwan Strait Crisis (1995-96), we provide a simple testing strategy which could precisely quantify the effects of political shocks on stock markets. This approach combines the features of one innovative panel estimator and new statistical learning methods for causal inference. Our results indicate, separating true signal from noise via the optimal benchmark, the political crisis had a substantial and significant negative impact on Taiwan's stock prices. This finding is consistent with the empirical evidence of risk premium in recent studies. Moreover, the optimal counterfactual could be an alternative option for the ceteris paribus assumption in non-lab controlled settings. Finally, this study shows predictor selection is needed for a convincing causal estimate in counterfactual studies.

Development of Electronic Communications in the Financial Market-Based System

Purpose: The article aims at revealing opportunities for forming long-term effective partnership communication with the consumer in the financial market. It elicits prospects for the development of communications in the financial market, considers reactions as responsive behavioral switching nodes evolving in the course of interaction and defines opportunities for forming long-term effective partnerships with consumers. Design / Methodology / Approach: To provide information for marketing communications in the financial market and ensure security, it is necessary: first, to study possible risks of communication and problems which are likely to happen in the course and as a result of interaction and counteraction to hostile manipulations in the information network; second, to provide protection of consumers and target groups’ rights and cooperation with public authorities in the field of information and communication security; third, to monitor staff activities; fourth, to entail market research and analysis of new segments, market stakeholders of traditional and innovative services. Findings: To enhance effectiveness of electronic communications in the financial market-based system, a set of measures for information support of marketing communications in the financial market has been elaborated to further ensure security. The technique of modern PR-communications in business is a universal tool of marketing technologies designed to create favorable public opinion and a positive perception of a certain economic entity. At the same time, maximum coverage implies forecasting the future development of the market situation in the financial market and establishing contact with the interested audience. Practical implications: The results of the study can be introduced into management practice to adapt the existing system of banking products distribution to innovative market demands and indicators of hidden and unmet demand and to develop and ideally implement innovative banking services. Originality/Value: The major contribution of this research is to identify prospects for communications development in the financial market and form reactions as response behavioral switching nodes arising in the course of interaction.