Negative Returns Research Articles

Volatility impacts on global banks: Insights from the GFC, COVID-19, and the Russia-Ukraine war

This study analyzes the volatility impact of the Chicago Board Options Exchange Volatility Index (VIX) on the global banking sector during the Global Financial Crisis (GFC), COVID-19, and the Russia-Ukraine War. Using a Dynamic Conditional Correlation (DCC) model with asymmetric Generalized Autoregressive Conditional Heteroskedasticity (GARCH) volatility, we examine three geographical regions, focusing on large banks. The key findings include significant symmetric Granger causality between volatility changes and negative bank returns during the GFC, asymmetric impacts of volatility increases and decreases in the lower quartile of bank returns, with COVID-19 exhibiting the strongest asymmetry, and volatility shocks affecting the downside risk of the banking sector, where the highest value-at-risk (VaR) levels occur in the GFC and the lowest during the war period. Finally, Asian banks demonstrated greater resilience to volatility impacts than European banks, which were the most affected by COVID-19 and the war. Overall, we find that volatility has less impact on the global banking sector in the war sample than in other crises. Our findings provide valuable insights for policymakers, investors, and regulators to help effectively manage future crises and ensure the stability of the global banking sector.

Estimating the Fiscal Impact of Stadium Developments: Evaluating a Pro Forma Model

Although researchers have demonstrated conclusively that sports stadiums are not economic development catalysts, stadium projects that include preplanned ancillary developments have been proposed as a salutary strategy to overcome the widely observed dismal economic performance of standalone stadiums. Using an objective rubric for evaluating economic impact studies, we review a commissioned pro forma model that claims to demonstrate net positive fiscal impacts of two prominent publicly-financed stadium-anchored developments. Using assumptions informed by existing research and established discipline standards, the model estimates substantial negative returns for both projects (−$40 to −$60 million in Worcester, Massachusetts and −$100 to −$200 million in Cobb County, Georgia). We find that the reported fiscal surpluses derive from chosen assumptions and not the stadiums’ complementary developments. We conclude that pro forma estimates do not provide credible forecasts of fiscal impacts, and ancillary developments do not improve the fiscal returns of stadium projects.

The Differential Timeliness of Stock Price in Incorporating Bad versus Good News and the Earnings-Return Asymmetry

ABSTRACT The larger association between earnings and contemporaneous returns for negative returns than for positive returns is often attributed to conditional conservatism. We reason that this asymmetry may also be driven by the lack of timeliness with which stock price incorporates bad news relative to good news. Consistent with our reasoning, we show that when stock price incorporates bad news with delay, the asymmetry can exist in the absence of conditional conservatism. This suggests the testable hypothesis that the asymmetry decreases (increases) with factors that facilitate (impede) the incorporation of bad news into stock price. Using stock liquidity to test this hypothesis, we find that the earnings-return asymmetry decreases as stock liquidity increases. Our findings support the view that variation in the earnings-return asymmetry also reflects variation in the quality of the return generation process. Data Availability: Data are available from public sources cited in the text. JEL Classifications: G14; G40; M4; M40; M41.

A Study of the Abnormal Dividend Decisions of New Zealand Firms during COVID-19

We investigated the stock return risk associated with the various types of dividend decisions announced by New Zealand firms during the COVID-19 pandemic in 2020. The sample includes a group of firms that initially announced cash dividends but a number of days later made announcements cancelling their payments. Using multinomial logistic regression analysis, we found that higher pre-pandemic payout policy significantly increased the likelihood of a cancellation, an omission or an increase decision. Higher growth and higher profitability reduced the probability of an omission and a reduction decision, respectively. Moreover, higher stock return volatility increased the likelihood of an omission, a reduction or an increase decision. Further event study analysis revealed that investors reacted more feverishly to the announcements of cancellation decisions than any other types of dividend decisions. Moreover, we report strong evidence of negative abnormal returns around the cancellation announcements followed by positive post-announcement price reversals, a pattern that is not observed for the omission announcements. This paper contributes to the literature by studying a cancellation sample and reveals, for the first time, significant shareholder risk associated with cancellation decisions, which was not observed for omission decisions. We alert managers to carefully weigh the costs and benefits of breaking a promise of dividend payout.

Stock market reaction to the military conflict between Russia and Ukraine: an event study for the European tourism and hospitality industry

ABSTRACT This paper examines the short-term market reaction of European tourism and hospitality industry to the beginning of the military conflict between Russia and Ukraine (24 February 2022). Using an event study, for a sample of 165 listed firms, we observe a negative and statistically significant stock price reaction at and around the beginning of the military conflict between Russia and Ukraine. These results are consistent with investor sentiment hypothesis and asset-pricing perspective. These reactions are reinforced or mitigated by firm-specific characteristics such as liquidity, size, profitability, and institutional ownership. Finally, we find that listed firms located in: (i) countries in which Russia and Ukraine are the largest source of inbound foreign tourists, and (ii) countries formerly occupied by the Soviet Union and/or that share a common border with Russia, tend to show more negative abnormal returns.

Divesting under Pressure: U.S. firms’ exit in response to Russia’s war against Ukraine

We explore the determinants and consequences of U.S. corporations limiting their business operations in Russia in the immediate aftermath of the 2022 Russian invasion of Ukraine. Firms with Russian exposure experience slightly worse stock market returns when the invasion begins on February 24, 2022. Russia-exposed firms with worse stock-price reactions to the war and greater share of operations in Russia are more likely to subsequently remain in Russia, while firms with milder ex ante exposure are more likely to withdraw or suspend their Russian operations. When U.S. firms announce exits from Russia in the aftermath of the invasion, there are no adverse announcement effects on their returns. Instead, exit announcements are preceded by a negative trend in abnormal returns that ends immediately on the day of the announcement. In regression analyses, immediately preceding negative stock returns are the strongest predictor of firms’ decisions to exit Russia, after size and industry. These results are consistent with firms choosing to limit their Russian presence in response to operational impact and reputational pressure, and the damage to stock returns stops immediately after the exit announcements.

Recognition probability in legislative bargaining

AbstractIn legislative bargaining, the proposer is often able to extract a greater proportion of the surplus. However, a higher likelihood of being selected as the proposer can backfire, as it may reduce the probability that the agent is included in a winning coalition. We experimentally test the theoretical prediction of potentially negative returns to recognition probability in two-period legislative bargaining noted in Baron and Ferejohn (1989). We find that higher recognition probability benefits subjects in all treatments, except one in which we automate the second period. It is because proposers often favor the member with the greater recognition probability as a coalition partner, and such tendency varies depending on the proposer’s recognition probability, counter to the theoretical prediction. In all treatments, a vast majority of subjects exhibit a strict preference for higher recognition probability.

A Method Mining Correlation High Utility Itemsets with Negative Profits

High-utility itemset (HUI) mining is an important task in the data mining process. Recently, many algorithms have been proposed to mine sets of HUIs. Most algorithms only work with data sets with positive return values. However, in the real world, the set of business items often includes both positive (+) and negative (-) profit values. To solve this problem, an algorithm is needed to find HUIs with negative returns in the database.The issue is how to mine efficiently correlation high utility itemsets with negative profits. Given the transactional database D and the profit table of products, how to find the best correlation high utility itemsets on the database with items having negative profits. To address these issues, the paper proposes a COHUIs_CoHUN method to mine correlation high utility itemsets with negative profits

Momentum in Low Carbon and Fossil Fuel Free Equity Investing

The Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) reiterated that climate change remains a critical issue for humanity. Especially, it stressed on the need to encourage a clean energy mix, including renewable and low-emission energies, as part of the continuing transition toward a cleaner and sustainable energy. Using daily indices data covering the period 1st January 2017 to 28th February 2023, this paper studies the performance of 2 family classes among sustainability indices, namely, low carbon and fossil fuel free indices. Specifically, this study sheds further light by assessing the performance of trading strategies which are based on the momentum of low carbon and fossil-fuel free based indices. The performance is based on a thorough analysis of the Relative Strength Index (RSI) and is captured through the Sharpe and Sharpe per trade measures. We decompose the analysis into pre and post COVID-19 to provide some insights how these sustainable energy investments were impacted by the coronavirus pandemic. Findings support an adjusted overbought/oversold RSI 75(25) model resulted in less false signals than the traditional 70 (30) model. Relative to the post COVID-19 period, all selected equity indices performed poorly in the pre- COVID-19 period, with negative returns, except for the MSCI World Low Carbon Leaders and the SPDR MSCI Emerging Markets Fossil Fuel Free equity indices. Comparatively, in the post COVID-19 period, all indices witnessed superior return performance, with also increased risk levels. SPDR MSCI Emerging Markets Fossil Fuel Free index ranked first, even after adjusting for number of trades. Investments post COVID-19 early impact period performed better than a naive buy-and-hold strategy for greener investments like low carbon and fossil fuel free equity indices.

Momentum investing and a tale of intraday and overnight returns: Evidence from Taiwan

The Taiwan stock market has been widely documented as a remarkable exception of the momentum effect. In this paper, we analyze whether the information contained in past intraday and overnight returns affects future stock returns in different ways. Specifically, we propose that investors tend to underreact to intraday information while overreact to overnight information. Accordingly, we construct two momentum strategies based on past intraday and overnight returns, namely the intraday momentum (IMOM) and overnight momentum (OMOM). We show that the IMOM strategy generates significantly positive returns while the OMOM strategy generates significantly negative returns, and that such phenomena exist up to one year. We further confirm that the IMOM profits are induced by investor underreaction while the OMOM reversals are due to investors' price correction of initial overreaction. Finally, we show that a major advantage of the IMOM strategy is that its profitability is stable over time and is less prone to the momentum crashes.

Research on the Performance of Hedge Funds with Different Strategies in the 2008 Financial Crisis

The financial crisis of 2008 affected hedge funds of all types and with different strategies to varying degrees. In this article, I will examine the performance of five strategies during the crisis and the reasons for this. In 2008, managed futures strategies returned 19.31% because the futures market mainly deals with commodities, which are highly volatile and trendy, and managed futures strategies, which are mainly trend-based, are more likely to achieve excellent returns in this market. The macro strategy returned 3.34% because the strategy executors focused on the overall economic fundamentals and potential crises. Because the macro strategy has a global coverage of investments and multiple species, there are more options to hedge against risks when they arise. The long/short equity strategy returned -19.26%. The long/short equity strategy is predominantly long, with significant losses on long trades outweighing gains on short positions resulting in an overall negative return. The event-driven strategy returned -20.30%. Major corporate events often suffer from various resistance to proceed correctly in the case of a financial crisis. I hope my research will help investors allocate their investments appropriately according to the characteristics of different strategy funds.

Analysis on Applicability of Market Neutral Strategies in Different Sectors

To offer returns which have low or even no correlation with the market index is one of the most widely cited benefits of the market neutral strategies. Thus, market neutral strategies can be applied to generate relative stable returns against the backdrop of increased economic uncertainty. Using market neutral strategies to construct portfolios with stocks from each of the five representative sectors: consumer cyclical sector, healthcare sector, energy sector, technology sector and financial sector, this paper analyzes the return on each portfolio and their linear correlation with the market to figure out which sectors the market neutral strategies are better suited for. The result shows that the portfolios with stocks from each of the healthcare sector, energy sector and financial sector outperformed the market, while the rest of the constructed portfolios underperformed the market. Moreover, the linear correlation analysis demonstrates that the market neutral strategy cannot effectively diversify market risk when the portfolio is from technology sector. Therefore, the market neutral strategy may be more applicable in healthcare sector and energy sector due to the higher return and better risk diversification results, while it may not be well applied to technology sector for the negative return and suboptimal risk diversification result.

From a stock market perspective: Is Lockdown Policy the Best Long-term Solution to COVID? Evidence from China and the UK

As one of the most frequently-taken measures to combat the COVID-19 viral spread, the lockdown policy had always been questioned with its impacts on the stock markets and accessibility in the long run. In this paper, I examine the respective stock closing prices of FTSE.GI and 0.000001SH in the UK and China, the countries that had announced lockdown policies several times to find out whether the lockdown restrictions and relaxations negatively affected the investors and their performance in the stock market. By analyzing the stock data with economic theories, it is found that although the markets did show positive returns in the final phases of declarations, they went through low liquidity, high volatility and negative returns for the majority time. Furthermore, the results also suggest that because of the presence of economic inertia and negative investor sentiment, further lockdown had adversely impacted the stock markets, indicating that the alternant lockdown announcements (restriction and relaxation) are not the best long-term solution to COVID from a stock market perspective.

Financing repurposed drugs for rare diseases: a case study of Unravel Biosciences

BackgroundWe consider two key challenges that early-stage biotechnology firms face in developing a sustainable financing strategy and a sustainable business model: developing a valuation model for drug compounds, and choosing an appropriate operating model and corporate structure. We use the specific example of Unravel Biosciences—a therapeutics platform company that identifies novel drug targets through off-target mechanisms of existing drugs and then develops optimized new molecules—throughout the paper and explore a specific scenario of drug repurposing for rare genetic diseases.ResultsThe first challenge consists of producing a realistic financial valuation of a potential rare disease repurposed drug compound, in this case targeting Rett syndrome. More generally, we develop a framework to value a portfolio of pairwise correlated rare disease compounds in early-stage development and quantify its risk profile. We estimate the probability of a negative return to be 80.8% for a single compound and 56.1% for a portfolio of 8 drugs. The probability of selling the project at a loss decreases from 79.2% (phase 3) for a single compound to 55.4% (phase 3) for the 8-drug portfolio. For the second challenge, we find that the choice of operating model and corporate structure is crucial for early-stage biotech startups and illustrate this point with three concrete examples.ConclusionsRepurposing existing compounds offers important advantages that could help early-stage biotech startups better align their business and financing issues with their scientific and medical objectives, enter a space that is not occupied by large pharmaceutical companies, and accelerate the validation of their drug development platform.

Financial crime and punishment: A meta‐analysis

AbstractWe provide the first quantitative synthesis of the literature on how financial markets react to the disclosure of financial crimes committed by listed firms. While consensus expects negative returns, the exact size of the effect is far from clear. We survey 111 studies published over three decades, from which we collect 480 estimates from event studies. Then, we perform a thorough meta‐analysis based on the most recent available techniques. We show that the negative abnormal returns found in the literature seem to be exaggerated by more than three times. Hence, the “punishment” effect, including a reputational penalty, suffers from a serious publication bias. After controlling for this bias, negative abnormal returns suggest the existence of an informational effect. We also document that accounting frauds, crimes committed in common‐law countries such as the United States, and allegations are particularly severely sanctioned by financial markets, while the information channels and types of procedures do not influence market reactions.

Corporate Crime Announcement Effect on Stock Price and Its Determinants in Malaysia

Nowadays, the increasing cases of crimes committed by corporations have posed challenges to enforcement agencies, especially in Malaysia. It may result in serious damage to financial institutions and economic performance, as well as generate social disorganisation and lower the level of confidence between investors and consumers. This study aims to examine the reactions of corporate crime announcements on stock prices and identify relationships among determinants of stock prices such as firm size, price to book value, earnings per share, and dividends per share in the context of firms involving crime. The sample consists of 11 announcements by 9 publicly listed companies charged by the Securities Commission for committing a corporate crime from 2003 to 2020, with a total observation of 162. The market model event study and fixed effect regression analysis are employed to analyze the data obtained from Yahoo Finance and Bursa Malaysia. The finding indicates that the AARs on the announcement date are not significant at the 5% level. However, the CAARs on the announcement date were negative abnormal returns and statistically significant. This reveals that the stock market is not reacting efficiently to the announcement of corporate crime because the stock price was not fully reflected in all publicly available information. Furthermore, the results of the fixed effect model revealed that firm size and dividend per share have a significant effect on stock price, whereas price-to-book value and earnings per share have insignificant relationships with stock price in the context of firms involved in corporate crime. This study intends to provide a better understanding of the causes of corporate crime and prevent corporate crime from becoming widespread in the country, thereby reducing the number of corporations that participate in crime.

The Impact of Robinhood's Retail Investing App on Investor Psychology and Financial Markets

The pandemic has seen a dramatic rise in retail investing, with millions of individuals worldwide downloading trading apps such as Robinhood. Such trading apps have provided unprecedented access to commission-free investing for all, regardless of investing experience and financial literacy. This creates an ethical dilemma: while a moral society should provide universal access to opportunities for wealth accumulation, easy access to investing has the potential to do great harm to novice investors. The GameStop frenzy of 2021 is a prime example of the damaging effects of risky investing decisions, both on individual novice investors and on financial markets overall. In its November 2021 Financial Stability Report, the U.S. Federal Reserve specifically called out the dangers of social media-driven investing and speculation by retail investors, citing the hazards of market volatility for financial stability. This research will examine the history of retail investing, the societal factors and existing inequities that have led to the rise of retail investing, and the impact of retail investing on investor psychology and decision-making. The research finds that retail investing encourages herd behavior and impulsive decision-making, and leads to more attention-induced trading and negative returns. Retail investing also amplifies both positive and negative market movements. This research will then describe possible solutions to these challenges, to ensure stable and secure financial markets, wise financial decision-making on the part of individual investors, socially responsible and responsive trading apps, and ethical access to trading for all investors.

Testıng The January Effect Usıng The GARCH (p,q) Model In MIST Countrıes

In this study, using the monthly closing data of the stock exchanges of MIST countries between 2005 and 2021, the effect of January on the returns of these stock markets was examined using the GARCH model. As a result of the analysis, it was determined that the positive returns on a monthly basis were high across the countries. However, the stock market of the country with the most negative returns was determined to be BIST. When the variance distribution analysis results are examined, it is seen that the differentiation of returns is greater in BIST compared to other countries. The country with the highest entry was observed in the BIST stock market as the November return. As a result of the analysis, it has been determined that there is no January effect in MIST countries. Although a long-term relationship between countries has been determined within the framework of the GARCH model, this situation is not considered as a situation that eliminates the efficient market hypothesis.

Reaksi Pasar Saham di Indonesia terhadap Keterbukaan Informasi Terkait Transaksi Afiliasi

Affiliated transaction or also known as related party transaction (RPT) refers to a transaction involving two or more parties with a special or related relationship. Due to this relationship, the transactions may not be conducted according to the arm's length principle or cause a potential agency problem. Therefore, information disclosure to the public is necessary to provide a material information regarding affiliated transactions and as a key aspect of adhering to principles of good corporate governance. The aim of this study is to analyze whether there is a significant and positive impact on Indonesian stock market, in response to the RPT Announcements by issuers in Indonesia. Despite the prevalence of affiliated transactions among group companies in Indonesia, there is little research focused on the impact of RPT announcements on stock market reactions in Indonesia. Using event study as the method, in this study assess whether stock prices adjust in a timely manner upon the arrival of new public information. The results indicate that there is a significant and positive average abnormal return on the third trading day before RPT Announcement, and a significant and negative average abnormal return on the fourth trading day after RPT Announcement. 
 
 Keywords: Stock market reaction, RPT announcement, affiliated transaction, event study

Return-volatility relationships in cryptocurrency markets: Evidence from asymmetric quantiles and non-linear ARDL approach

Implied volatility has consistently demonstrated its reliability as a superior estimator of the expected short-term volatility of underlying assets. In this study, we employ the newly constructed robust model-free implied volatility (MFIV) indices for Bitcoin and Ethereum (BitVol and EthVol) to explore the asymmetric return-volatility relationship of these cryptocurrencies through the lens of behavioral finance theories. Utilizing the asymmetric quantile regression model (QRM) and the Non-linear ARDL (NARDL) approach, our results reveal a notable difference from equities. Both positive and negative return shocks in the cryptocurrency market lead to an increase in volatility. However, during high volatility regimes, positive (negative) return shocks exert a more substantial impact on positive innovations of volatility for Bitcoin (Ethereum) compared to negative (positive) return shocks. The degree of asymmetry steadily intensifies as we progress from medium to uppermost quantiles of the volatility distribution. These observed phenomena can be attributed to behavioral aspects among market participants, including noise trading, behavioral biases, and fear of missing out (FOMO). Our findings hold significant implications for various aspects of cryptocurrency trading, portfolio hedging strategies, volatility derivatives pricing, and risk management.