Negative Returns Research Articles

Impacts of climate pact on global oil and gas sector stocks

PurposeThe purpose of this study is to examine the impacts of the Glasgow Climate Pact on global oil and gas sector stocks. Further, this study also examines if the nations' Climate Change Performance Index (CCPI) and World Energy Trilemma Index (WETI) drive the abnormal returns around the event.Design/methodology/approachThe authors apply the event study analysis to 691 global oil and gas firms across 52 countries. Further, they apply the cross-sectional examination of cumulative abnormal returns (CARs) across 502 firms.FindingsThe emerging markets experienced significant negative abnormal returns on the event day. The CCPI negatively affects longer pre-event CARs, while WETI significantly negatively associates with CARs during longer pre- and post-event windows. Volatility is negatively related to pre- and post-event abnormal returns, while past returns positively drive pre-event period CARs but negatively drive post-event window CARs. This study finds an interesting association between liquidity (CACL) and CARs, as CACL positively drives pre-event CARs, but post-event CARs are negatively associated with CACL. The CARs do not significantly correlate with leverage, size and book-to-market ratio.Practical implicationsThis study's findings on the impact of climate risks on financial markets have significant implications for global regulatory bodies. Policymakers should reduce stock volatility and enhance environmental disclosures by publicly traded companies to accurately price and assess the potential impacts of climate risks. Governments should examine the effects of environmental restrictions on investor behavior, especially in developing countries with limited access to capital. Therefore, policymakers need to consider the far-reaching impacts of environmental regulations while introducing them.Originality/valueClimate risks are expected to impact the global financial market significantly. Prior studies provide limited evidence on how such climate pacts impact the oil and gas sector. Hence, this study, while bridging this gap, provides important implications for policymakers and stakeholders, particularly the emerging markets that are more sensitive.

Understanding the role of aggregate analyst attention in resolving stock market uncertainty

This paper investigates whether sell-side analyst attention effect extends to the aggregate stock market. Our findings demonstrate that: (i) aggregate analyst coverage negatively predict future stock market returns while controlling for a rich set of predictors related to economic fundamentals and investor sentiment. (ii) higher aggregate analyst coverage also precede lower market-wide cash-flow volatility, cash holdings, absolute magnitude of unexpected earnings, investor information-search demand, and greater capital expenditures, long-term debt, indicating that the negative return premium stems from less compensation for lower expected market uncertainty. (iii) long-short profits of overreaction-related and lottery-related anomalies significantly decrease following high levels of aggregate analyst attention. Our results highlight the important role of aggregate analyst attention in reducing stock market uncertainty and enhancing investor rationality, thereby mitigating anomalies induced by psychological biases.

When ESG talks: ESG tone of 10-K reports and its significance to stock markets

Since the ESG topic consistently gains on importance in the investment universe, companies provide investors with information regarding recent and future ESG activities through different reporting channels. The most recent research finds relevance of ESG-related corporate activities for formation of investors' opinion regarding companies' valuations and growth prospects. Based on a sample of more than seventeen thousand unique 10-K reports of US companies filed with SEC in period 2013 to 2019 and the word-power methodology proposed by Jegadeesh and Wu (2013), this study also shows evidence for significant relation of ESG textual tone of 10-K reports to stock market returns of filing companies around the report filing dates. Using the ESG linguistic dictionary recently proposed by Baier, Berninger, and Kiesel (2020), this study shows evidence for significant relation of social and governance-related topics disclosure to stock returns, while environmental narratives being ignored by the markets. When looking at individual words from the ESG lexicon, such words as “community”, “health”, “control” imply positive reaction of markets, while “discrimination”, “embezzlement”, and “crime” are related to negative returns. The robustness analysis based on the inverse document frequency word weightings and actual ESG performance scores confirms the significance of ESG information disclosure of 10-K reports for investors. Thus, this study sheds light on the mechanics of ESG information perception and its influence on capital markets.

Differences in the response of transmission lines subjected to the currents of negative and positive lightning flashes: Influence of ground terminations

The differences on the lightning response of transmission lines, whose towers are subjected to the impression of pulses of current of first negative return strokes and of positive flashes, are determined by computational simulation. It is shown that the amplitude of the resulting transient overvoltages across insulators per unit of impressed current is much larger for negative return strokes. As most of the traditional procedures for assessing lightning performance of transmission lines ignore these differences, their results can exhibit significant errors.

Avoiding momentum crashes using stochastic mean-CVaR optimization with time-varying risk aversion

In occasions called momentum crashes, the usually effective cross-sectional momentum strategy for financial asset allocation produces drastically negative returns. We develop a stochastic mean-risk optimization model featuring CVaR to control the risk, dynamically adjusted CVaR tail probability and objective function weight, and return scenarios generated by hybrid moment-matching. In a 95-year backtest, portfolios rebalanced by our method provide higher returns and lower risk than those rebalanced by a cross-sectional momentum heuristic, while avoiding momentum crashes.

The Impact of Russia’s Invasion of Ukraine on the Capital Markets from the CEE Countries

Abstract The price of stocks is a good indication of investors’ expectations for the evolution of capital markets, comprising their fears and hopes regarding future developments. The information regarding a disruptive event such as a military attack spreads rapidly across countries affecting investors’ perceptions and causing them to sell their stocks and target safer investments. The scientific literature on the topic is growing lately due to the ongoing Russo-Ukrainian war and its consequences. The research paper investigates the impact of Russia’s invasion of Ukraine on the capital markets from the Central and Eastern European region using the event study methodology. The paper studies the abnormal returns recorded by each capital market on the event day (February 24, 2022), as well as the cumulative abnormal returns for 6-day, 11-day and 16-day event windows following the attack. The findings show that most of the capital markets recorded sharp declines on the event-day, reaching a negative abnormal return event of 10% on February 24. For the longer event windows the negative impact persisted through cumulative abnormal returns recorded for most of the markets. The highest declines were recorded on the 6-day and 11-day event windows as all capital markets considered incorporating the bad news of the war outbreak and lost the initial hope of being a disinformation or a short-term military attack. Within 35 trading days following the invasion, 64% of the markets rebounded and returned to their pre-attack level. However, 4 capital markets recorded more than 200 trading days with a level lower than the one registered before the invasion. The paper contributes to literature extending the studies of capital markets’ behavior during military conflicts focusing on neighboring countries.

The Dark Side of Investor Conferences: Evidence of Managerial Opportunism

ABSTRACT Although the shareholder benefits of investor conferences are well-documented, evidence on whether these conferences facilitate managerial opportunism is scarce. We examine whether managers opportunistically exploit heightened attention around the conference to “hype” the stock. We find that (1) managers increase the quantity of voluntary disclosure leading up to the conference, (2) these disclosures are more positive in tone and increase prices to a greater extent than post-conference disclosures, and (3) these disclosures are more pronounced when insiders sell their shares immediately prior to the conference. In circumstances where pre-conference disclosures coincide with pre-conference insider net selling, we find evidence of a significant return reversal––large positive returns before the conference and large negative returns after the conference––and that the firm is more likely to be named in a securities class action lawsuit. Collectively, our findings are consistent with some managers hyping the stock prior to the conference.

Choosing Banks’ Profitability Predictors: A Comparison of Logistic Regression and Discriminant Analyses

For researchers, banks' profitability has been a key factor. Various internal and external factors may have an impact on the banks’ profitability. Internal factors are unique to each bank and have an impact on management decisions that affect bank profitability. External factors are those outside of the banks' control that can affect how well they perform. This study examines significant financial variables identifying profitability perspectives and two predictive models of banks’ profitability using the banks' data from the period of 2007-2016. Logistic regression and discriminant analyses were used and evaluated their predictive accuracy. Although, logistic regression and discriminant analysis are unusual for such studies as the dependent variable is continuous and these techniques are applicable when the dependent variables are categorical. So, in order to convert the dependent variable i.e. return on assets to binary variable, ’1’ is assigned for a positive return on assets and ‘0’ for a negative return on assets. The empirical results described that there is a statistical difference between the prediction results of logistic and discriminant analyses. The discriminant models identified that non-interest income, interest rate, operating efficiency, and bank size have a significant effect on banks’ profitability. On the other hand logistic regression showed there are two significant factors i.e. interest ratio and bank size. In the comparison of the models and the accuracy rate of discriminant analysis is higher than that of logistic regression

The effects of reputational sanctions on culpable firms: Evidence from China’s stock markets

We examine an important yet understudied form of reputational sanction in China, namely public criticisms imposed on culpable firms by the Chinese stock exchanges from 2013 to 2018. We find significantly negative cumulative abnormal returns around the announcement date, and they were affected by several factors, including financing propensity, governance mechanism, and equity nature. However, the market reaction is significantly negative only for firms relying on external financing and non-state enterprises, and importantly, becomes insignificant in cases where the firm had self-exposed misconduct before the official announcement of public criticism. Further, we examine other effects of public criticism, finding that public criticism does not improve firms’ long-term values, nor produce strong deterrence to change their behaviour. Overall, the evidence of the effects of public criticism on culpable firms is mixed, suggesting that reputational sanction is a weak, if not ineffective, instrument of market regulation in China.

Gold's hedging and safe haven properties for European stock and bond markets

Most portfolio managers and risk managers strive to pick assets that lead to efficient financial risk mitigation; among them, gold stands out. This paper provides new insights into the role of gold as both a hedge and a safe haven towards European stock and sovereign bond markets. We base the analysis on evidence spanning the Euro's inception to the COVID-19 pandemic spread across Europe. To capture gold's hedge ability, we use the ADCC-GARCH and DCC-GARCH models, while for testing gold's safe haven property we use OLS regressions for different quantiles. Our results show that gold is a hedge for stocks, particularly after the Lehman Brothers collapse. Gold also shows strong safe haven properties for the most extreme negative returns (1% and 2.5% quantiles), and during specific events, such as the Lehman Brothers collapse, the Greek bailout and the Brexit Referendum. Still, for the COVID-19 pandemic outbreak, the results do not confirm this property. Conversely, for bonds, both hedge and safe haven effects are not strongly evident, with gold characterised, at best, as a weak hedge and safe haven. These findings have portfolio allocation implications for investors in European markets, namely fund and risk managers, by pointing out gold hedging and safe haven attributes.

ELECTIONS AND STOCK MARKET RETURNS: EVIDENCE FROM BORSA ISTANBUL

Stock prices may display predictable patterns around major political events, particularly in emerging market economies where political risk is a key component of asset risk premiums. One distinct event that would be expected to result in an abrupt increase in political risk is elections. Motivated by this notion, we study the returns for a set of indicator and sectoral indices of Borsa Istanbul stocks and the U.S. Dollar–Turkish Lira exchange rate around political elections held in Turkey over 2001–2020. Our tests reveal an accumulation of economically and statistically significant positive abnormal returns for all Borsa Istanbul stock indices and negative abnormal returns for the U.S. Dollar–Turkish Lira exchange rate over a window that starts as early as a month prior to the election date and extends for two weeks into the post-election period, with the effect being particularly strong in the week immediately following the election. Consistent with a political risk-based story, volatility of index returns starts increasing over the same period and plateaus out at a level that is roughly one-and-a half to two-folds greater than its pre-election period average.

RETURN SPILLOVERS BETWEEN EMERGING MARKETS’ FINANCIAL STRESS AND EQUITY MARKETS OF BRIC-T COUNTRIES

This study explores the connectedness between selected emerging equity markets (BRIC-T) and the
 Emerging Markets Financial Stress Index (EMFSI). We aim to reveal the extent of spillovers from stock
 market indices to aggregated financial tension in these countries. Empirical investigations are executed
 through Quantile Vector Autoregression analysis. Results show that spillovers occur mainly during extreme
 negative and positive return periods. When we focus on four important phases, namely Global Financial
 Crisis (GFC), the Euro Area Sovereign Debt Crisis, the COVID-19 pandemic, and the Russia-Ukraine war,
 three countries come to the fore. While Brazil has had a substantial and persistent impact across the years,
 during the GFC, two other countries, Russia and Türkiye, seem to induce positive return spillovers toward
 emerging markets’ stress. This impact becomes bilateral in Russia (both in positive and negative returns)
 during the pandemic and the Russia-Ukraine war. Thus, we conclude that among the examined market
 economies, negative or positive return transmissions to emerging market stress are led mainly by Brazil and
 Russia. The importance of energy sources and political factors can account for this result.

Investment dynamics in the energy sector under carbon price uncertainty and risk aversion

Decarbonizing the electricity system in order to contribute to climate change mitigation is a key policy goal. Yet, uncertain political and economic conditions (e.g., electricity prices) create uncertainty for energy companies. The dynamics of carbon price developments and aversion to uncertainty may have decisive impacts on companies’ investment decisions and thus environmental and distributional outcomes. In this paper, we incorporate a dynamic portfolio approach in a simulation model of investments in the electricity sector to explore and disentangle the impacts of both uncertainty and risk aversion on companies’ investment decisions. We find that policy uncertainty and risk aversion tend to delay the transition to a low-carbon energy system, with higher levels of either factor causing even further delays. However, the mechanism for the delay depends on how risk aversion is modeled, e.g. whether companies are averse to losses, or variances or if they use a higher discount rate in uncertain situations. Employing the loss-averse approach, the company prefers technology with a low likelihood of negative returns for the portfolio; meanwhile, the mean-variance approach indicates an aversion to both positive and negative deviations in returns. With a high discount rate, investors favor less capital-intensive technologies. To account for the impact of risk aversion in policy framework we, therefore, need more empirical work on understanding these behavioral traits of energy companies.

ESG Rating Dispersion and Expected Stock Return in China

ABSTRACT ESG rating dispersion has left responsible investors in great confusion and posed non-negligible barriers to sustainable investment. Despite its importance, there is a lack of research on the role of ESG rating dispersion in portfolio decisions and asset pricing for the Chinese capital market. We reveal the negative return predictability of ESG rating dispersion, which cannot be solely attributed to common risk exposures. We also consider two potential mechanisms based on institutional investor demand and belief dispersion underlying this negative relation. Our findings have important practical implications for asset managers seeking to optimize financial performance while investing responsibly.

Good volatility, bad volatility, and the cross section of cryptocurrency returns

This paper examines the predictability of realized volatility measures (RVM), especially the realized signed jumps (RSJ), on future volatility and returns. We confirm the existence of volatility persistence and future volatility is more strongly related to the volatility of past positive returns than to that of negative returns in the cryptocurrency market. RSJ-sorted cryptocurrency portfolios yield statistically and economically significant differences in the subsequent portfolio returns. After controlling for cryptocurrency market characteristics and existing risk factors, the differences remain significant. The investor attention explains the predictability of realized jump risk in future cryptocurrency returns.

Stock return anomalies identification during the Covid-19 with the application of a grouped multiple comparison procedure

This study investigates the impact of COVID-19 pandemic on the Chinese stock market in 2020. Using daily data of three industries, this study addresses the identification of abnormal stock returns as a multiple hypothesis testing problem and proposes to apply a grouped comparison procedure for better detection. By comparing the numbers of daily signals and numbers of stocks with abnormal positive and negative returns, the empirical result shows that the three industries perform differently under the pandemic. Compared to the non-grouped testing procedure, the signals found by the grouped procedure are more prominent, which is advantageous for some situations when there tends to be abnormal performance clustering at the occurrence of major event. This paper on stock return anomalies gives a new perspective on the impact of major events to the stock market, like the global outbreak disease.

GELİŞMEKTE OLAN PİYASALARIN FİNANSAL STRESİ VE BRIC-T ÜLKELERİNİN HİSSE SENEDİ PİYASALARI ARASINDAKİ GETİRİ YAYILIMI

This study explores the connectedness between selected emerging equity markets (BRIC-T) and the
 Emerging Markets Financial Stress Index (EMFSI). We aim to reveal the extent of spillovers from stock
 market indices to aggregated financial tension in these countries. Empirical investigations are executed
 through Quantile Vector Autoregression analysis. Results show that spillovers occur mainly during extreme
 negative and positive return periods. When we focus on four important phases, namely Global Financial
 Crisis (GFC), the Euro Area Sovereign Debt Crisis, the COVID-19 pandemic, and the Russia-Ukraine war,
 three countries come to the fore. While Brazil has had a substantial and persistent impact across the years,
 during the GFC, two other countries, Russia and Türkiye, seem to induce positive return spillovers toward
 emerging markets’ stress. This impact becomes bilateral in Russia (both in positive and negative returns)
 during the pandemic and the Russia-Ukraine war. Thus, we conclude that among the examined market
 economies, negative or positive return transmissions to emerging market stress are led mainly by Brazil and
 Russia. The importance of energy sources and political factors can account for this result.

Fear of COVID-19 Effect on Stock Markets: A Proposal for an Algorithmic Trading System Based on Fear

This study analyzes the fear of COVID-19 effect on European stock market returns. For this purpose, the search volumes (SV) collected by Google Trends (GT) and Wikipedia were used as proxies of fear of COVID-19. In a sample from 13 European stock markets, fear of COVID-19 was found to be associated with negative European stock returns. Our research employed this observation to propose an algorithmic trading system based on fear of COVID-19. Back-testing results show the possibility of extraordinary returns based on this system. These findings have important implications for political authorities, the mass media, and investors.

Retail Derivatives and Sentiment: A Sentiment Measure Constructed from Issuances of Retail Structured Equity Products

ABSTRACTWe use retail structured equity product (SEP) issuances to construct a new sentiment measure for large capitalization stocks. The SEP sentiment measure predicts negative abnormal returns on the SEP reference stocks based on a variety of factor models, and also predicts returns in Fama‐MacBeth regressions that include a wide range of covariates. Consistent with our interpretation that SEP issuances reflect investor sentiment, aggregate SEP issuances are highly correlated with the Baker‐Wurgler sentiment index. Tobit regressions reveal that proxies for attention and sentiment predict SEP issuance volumes, providing additional evidence consistent with the hypothesis that SEP issuances reflect sentiment.

Regulating Gender Diversity: Evidence from California Senate Bill 826

Do gender diversity quotas enhance firm value? This broad question has sparked significant debate because, whereas diversity is generally thought to improve board functioning, prior research in international settings suggests mandating diversity may have adverse consequences if it moves firms away from market equilibrium. Exploiting the political events leading up to the passage of California Senate Bill (SB) 826 as an exogenous shock to assess the market implications of board gender composition, we document either significantly positive or insignificant two-day abnormal returns for California firms across a variety of model specifications. Importantly, this finding contradicts the strong claims of contemporary studies of SB 826 that the California mandate was value-destructive. We reconcile these findings by providing critical evidence that contemporaneous results lack robustness to alternative model specifications and provide an incomplete picture by failing to comprehensively examine a broader set of event dates or account for mixed messaging on the final event date. We also provide some evidence of significant negative abnormal returns to litigation milestones that threaten to overturn SB 826 with the magnitude increasing in the size of board gender deficits. Finally, we provide evidence that there is no observable decline in newly appointed female director quality following the implementation of SB 826 relative to either preregulation or male director appointments. Collectively, our results suggest nonnegative (if not positive) consequences to California firms arising from SB 826 and directly counter assertions that mandated gender diversity is detrimental to firm value. This paper was accepted by Brian Bushee, accounting. Funding: The authors gratefully acknowledge research funding from Brigham Young University and the University of Toronto. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4825 .