Stock Market Reaction Research Articles

IMPACT OF META VERSE ANNOUNCEMENT DATE ON STOCK PRICES

Purpose-The developing metaverse, a virtual world poised to transform online interaction, has raised an important question: how does a company's participation influence its financial standing? This study focuses on the e-commerce behemoth Amazon and its prospective entry into the metaverse. Our major goal is to determine whether a statement by Amazon on their metaverse plans causes a significant impact in their stock price. By examining past stock data with any potential metaverse announcement dates, we hope to determine whether Amazon's excitement about the metaverse translates into an actual financial benefit. This study dives deeper by examining the specifics of the announcement (assuming it occurs). Does the level of commitment and investment mentioned affect the stock price reaction? Finally, this study aims to bridge the gap between the hoopla surrounding the metaverse and its real-world ramifications for corporations such as Amazon. Approach: Event Definition: The event of interest is the particular day on which our selected companies makes a public declaration about entering the metaverse. This date will be critical to our analysis. Event Window: We'll set a timetable around the announcement date. This window will most likely consist of two parts: Estimation Window: The period preceding the announcement, we have selected 110 days, helps set a baseline for Amazon's stock price performance and eliminates the impact of unrelated market movements. Event Window: This time period, we have selected as 10 days before and after following the announcement allows us to monitor any potential changes in stock price due to metaverse news. Findings: Stock Price Change: The investigation may discover a statistically significant boost in companies stock price following a metaverse announcement. This suggests that investors reacted positively to the announcement, maybe seeing the metaverse as a new growth prospect. No Change or Negative Change: Alternatively, the investigation may discover no substantial change, or even a decline in stock price following the announcement. This could suggest investor concern about companies capacity to capitalize on the metaverse, as well as a general market correction during the event window. Impact of Announcement Specificity: The study may find that the level of depth and commitment conveyed in the announcement influences stock price movement. A more thorough and ambitious proposal may elicit a better positive response from investors. Industry-Specific Effects: The research design might be expanded to compare company's stock price movement to those of other companies in different industries following metaverse announcements. This could reveal whether particular industries have a stronger stock market reaction because of their deeper relationship to the metaverse. Limitation: For starters, the metaverse is a very new concept, so any announcement by worldwide companies may focus on future projects. This makes it difficult to estimate the long-term financial impact on the company's stock price. Furthermore, the specifics of the announcement itself (assuming it occurs) are critical. A vague announcement with few specifics may have a lower impact on the stock price than a well-defined plan with realistic investment figures. These constraints underscore the need for additional research as the metaverse and corporate participation in it evolve.

De-risking pension plans: the impact on firm value from lump-sum buyouts

Firms have attempted to de-risk their pension obligations by offering its pension beneficiaries a lump-sum distribution instead of the guaranteed payments to be paid to retirees in a defined benefit pension plan. We examine the stock market reaction to the announcement of these offerings using event study methodologies. We find a statistically significant positive cumulative abnormal returns for the 20-day period prior to the event, the 20-day period after the event, and for the entire 41-day event period surrounding the announcement. We also find that the cumulative abnormal returns are higher the more liabilities a firm has and increases with the level of funding of the pension plan. Our results contribute to the literature on pensions by finding that firms that buy out their pensioners’ defined benefit payments via a lump-sum distribution experience an increase in firm value. There is a significant amount of analysis of such buyouts in the literature and in the press, but our results are the first to examine and document the increase in value derived from such pension changes. We also more fully develop the motivations for such events from a cost/benefit perspective.

Regional and periodic asymmetries in the effect of Russia-Ukraine war on global stock markets

This study aims to investigate regional and periodic asymmetries in the impact of the outbreak of the Russia-Ukraine war on global equity markets. Employing the event study methodology, the current study examines global stock market reactions within a 61-day window centred around the event day, i.e., February 24, 2022. MSCI equity indices of 47 sample countries have been utilized to ensure uniformity in the index development methodology. They provide broader coverage of global equity markets by including large and mid-cap companies, representing approximately 85% of the free float-adjusted market capitalization for each sampled country. The study extends the event window to 61 days to assess the enduring effects of the war over a relatively longer period. The research delineates regional and periodic asymmetries and posits that the impact of the war on a market is contingent upon its geographical proximity and trade relations with Russia and Ukraine. Additionally, the impact is stronger during a shorter window surrounding the event date but diminishes over the extended period.

Gender Differences in Analyst Stock Recommendations and Market Reactions

This paper provides evidence of gender heterogeneity in stock recommendations issued by analysts in China. The study finds that compared to male analysts, female analysts tend to have more conservative stock recommendations and lower levels of optimism. Male analysts are more likely to issue "buy" and "hold" recommendations, while female analysts are more likely to issue more conservative "neutral," "sell," and "reduce" recommendations. In the short term, the market reacts strongly to the ratings of female analysts, but their optimistic recommendations receive a poor response from investors. Investors may hold stereotypical beliefs towards female analysts, expecting them to adopt conservative strategies, and thus underestimate them when they make relatively optimistic suggestions. However, in the long term, there is no evident bias against female analysts in the market.

ChatGPT and the banking business: Insights from the US stock market on potential implications for banks

Technological advances in artificial intelligence, such as ChatGPT, promise significant potential for automation in the banking sector, but might also be associated with uncertainties and potential disadvantages for banks. By empirically analyzing US stock market reactions to ChatGPT’s launch, this study extracts the expectations of market participants to gauge potential future implications of ChatGPT for banks. The results indicate a significant negative stock market reaction of US bank stocks, with notable disparities between different bank types. Using cross-sectional regressions, we find that the negative market reaction is more pronounced for deposit-dependent and large banks.

Stock market reactions under the shadow of the COVID-19 pandemic: Evidence from China

This paper studies how the Chinese stock market reacts to new COVID-19 infections under the zero-COVID policy. Consistent with the literature, we find that a COVID-19 outbreak within a city adversely affects the performance of local firms, but further unveils the effect’s nonlinearity. More importantly, we document an unexpected pattern of spatial spillover of the COVID-19 shock, which is likely to be caused by the policy itself. In addition, firms with significant retail exposure are most vulnerable, while firms with low pandemic exposure, larger size, state-owned enterprise (SOE) status, and robust finances demonstrate greater resilience to the COVID-19 shock. Mechanism analysis indicates that the COVID-19 effects are realized through both cash flow and discount rate channels. Supplementary back-of-the-envelope calculations illustrate the substantial economic consequences of these phenomena, which shed light on the debate on the optimal policy in response to a future pandemic.

COVID-19-related announcements in a continuous disclosure environment: drivers and stock market implications

PurposeThe purpose of this research note is to investigate the drivers and market reaction to firms’ decision to release general COVID-19-related announcements and to withdraw earnings forecasts and dividends during the COVID-19 pandemic in the continuous disclosure environment of Australia.Design/methodology/approachThe authors first tracked the market reaction of all firms in the Australian Securities Exchange All Ordinaries, Top 300, Top 200 and Top 100 indices during the early period of the COVID-19 pandemic between 1 January and 21 September 2020. The authors then focus the investigation on the incidence of firms deciding to withdraw earnings forecasts and dividends and how the market responded to these incidences during that period.FindingsThe market reacted negatively during the March/April 2020 period but then bounced back to the pre-March 2020 level. The market reaction is mainly driven by three industries, including consumer discretionary, health care and utilities. Firms in industry sectors such as consumer discretionary, materials, health care and information technology contribute to the highest percentage of COVID-19 announcements. It is interesting to document that firms issuing COVID-19 announcements and withdrawing earnings forecasts and dividends tend to be larger firms with stronger financial performance and higher financial leverage. Regarding the stock market reaction, while the market generally reacted positively to COVID-19-related announcements, the decision to withdraw earnings forecasts and dividends is significantly regarded as bad news.Originality/valueThe COVID-19 pandemic has provided a unique natural event to examine firms’ disclosure behaviour in the continuous disclosure environment of Australia during this period of extreme uncertainty. The incidences of earnings forecasts and dividend withdrawals are mainly driven by larger, better performing and higher leverage firms in the consumer discretionary, health care, materials and information technology industry sectors. The market generally reacted favourably to COVID-19-related announcements, despite a significant stock price drop during the March/April 2020 period. The findings provide important regulatory and practical implications.

Stock Prices and COVID-19 Stimulus Policies: Evidence From Tourism and Hospitality Industry

This study examines the impact of economic stimulus policies on tourism-related firms’ stock prices, after movement restriction announcements, and differences in the relationships between economic policy responses and stock prices for large firms vis-à-vis small firms. Using a cross-section data of 888 firms from 56 countries listed on several stock exchanges, we find a positive and significant association between the COVID-19 economic stimulus index and 1- and 2-week average changes in tourism firms’ stock prices after movement restriction announcements. Tourism firms’ stock prices responded favorably to the introduction of macrofinancial packages and monetary policies. This study complements the literature on stock market reactions during the pandemic and contributes to the growing body of literature examining its overall effect.

Do their reputations precede them? Stock market reaction to changes in corporate reputation in the context of sector and market maturity

Our study extends the existing literature by examining whether the stock market’s maturity and the sector in which a company operates affect the relationship between an improvement in its corporate reputation and its stock returns. This event-study research is based on data from developed and emerging stock markets: the NYSE (US) and the WSE (Poland). The improvement in corporate reputation is proxied by its inclusion in a reputational index. We analysed inclusions in the RESPECT Index and WIG-ESG in Poland from 2009 to 2023. Then we compared the effects of inclusions on stock prices in the Polish market and the US market, in which the Dow Jones Sustainability Index (DJSI) was applied. Our findings suggest that in the emerging Polish market, significant reaction to inclusion in the index persists even when the sectoral circumstances are considered. Contrarily, in the developed US market, the strong positive effect of inclusion disappears in the sectoral context. Hence, significant returns may not be driven by the inclusion in a reputational index but rather result from other events that affect the particular sector.

Long-Term Orientation and Tax Avoidance Regulations

In this paper, we explore the relationship between the culture of the country where a multinational corporation (MNC) is headquartered and the MNC’s stock market reaction to tax avoidance regulations. Specifically, we examine the different responses of MNCs following the implementation of the 2010 UK reform that restricted profit shifting for a specific group of firms. We find that, in countries with short-term-oriented cultures, MNCs affected by this reform experienced positive stock market responses relative to their unaffected counterparts. This is not found in long-term-oriented cultures. This difference in response can partly be explained by the differing perceptions of the role tax havens play in tax minimization practices between more long-term-oriented cultures and those oriented towards the short term. We provide evidence that investors from more future-oriented cultures may recognize the short-lived effectiveness of a regulation ex ante, and thus price the quasi-exogenous market shock differently than their more short-term-oriented counterparts.

The reaction of the Egyptian stock market to recurring devaluations: an event study approach

PurposeThis paper examines the reaction of the Egyptian stock market to two substantial devaluations of the Egyptian pound (EGP) in 2022 and tests the informational efficiency of the Egyptian market.Design/methodology/approachThe paper uses the event study framework to analyze the significance and direction of abnormal returns of the leading index of the Egyptian stock market (EGX30) on and around the devaluation days. It employs both the constant mean model and the market model to estimate the normal returns of the EGX30. Additionally, the paper uses data on two equity indices, one global and one for emerging markets, as benchmarks for normal returns.FindingsThe paper finds that the Egyptian stock market experienced significant positive abnormal returns on the devaluation days of the EGP in March and October of 2022, indicating a positive market reaction to the devaluation. Furthermore, evidence suggests that the Egyptian market may not be informationally efficient as significant positive abnormal returns were observed two weeks before and two weeks after the devaluation day, suggesting news leaks and delayed reactions, respectively.Originality/valueThis study is the first to examine the impact of the recent two devaluations of the EGP in 2022 on the Egyptian stock market. It complements existing literature by analyzing the immediate market reaction to two consecutive devaluations in an African country. Furthermore, the paper evaluates the efficiency of the Egyptian market in processing information related to exchange rates.

XBRL reporting in firms with data breach incidents

AbstractThe Securities and Exchange Commission (SEC) adopted new rules mandating that firms disclose cybersecurity incidents and risk management procedures for inline XBRL reporting, highlighting the regulator's concern about firms’ response to data breaches. In this study, we examine whether firms use XBRL strategically to hinder external stakeholders from understanding the impact of announced data breaches. We find that firm XBRL filing complexity increases following data breaches. Further investigation suggests that the increased XBRL complexity is concentrated on financial statement note tags instead of financial statement tags. The findings imply that firms with data breach incidents are likely to increase XBRL reporting complexity to mitigate stock market reactions. We also find that analysts following moderate the relationship between the data breach and XBRL reporting timeliness. These findings provide empirical evidence about XBRL reporting changes after data breach incidents and contribute to cybersecurity literature and XBRL filing regulation.

Exploring the relationship between dividend policy, the COVID-19 crisis, and stock market reaction: empirical insights from Indonesian real estate and property firms

Exploring the relationship between dividend policy, the COVID-19 crisis, and stock market reaction: empirical insights from Indonesian real estate and property firms

The use of corporate social responsibility in response to product‐harm crisis: How do stock market reactions matter?

AbstractThe initial stock market reaction to a product‐harm crisis is an important factor motivating firms to engage in corporate social responsibility (CSR). By analyzing event data on product‐harm crises in Chinese listed companies spanning from 2009 to 2019, we uncover evidence that crisis‐related abnormal returns have a significant negative association with the subsequent growth of CSR. Importantly, we find that this negative relationship is especially pronounced for firms that have a greater need to restore moral legitimacy, such as those receiving high levels of media favorability and positive analyst recommendations. These findings offer novel insights into the motivations behind firms' increased investment in CSR following product‐harm crises from a legitimacy perspective.

AI Patent Approvals in Service Firms, Patent Radicalness, and Stock Market Reaction

Artificial intelligence (AI)-driven automation is of growing interest in the service sector. Using practice theory in service innovation and recombinant uncertainty frameworks, we ask whether AI patent approval for service firms is received positively by the stock market and whether patent radicalness strengthens or exacerbates the stock market reaction. We draw on 650 service industry firms from the years 1976 to 2019 with 133,813 non-AI patents and AI patents, including 7,543 (AI machine learning), 33,804 (AI hardware), and 53,419 (AI planning/control). The results show that the stock market reaction is positive for machine learning AI patents, and increasing radicalness strengthens the positive relationship; however, the reaction is negative to AI-related planning and control patents and increasing radicalness exacerbates the negative reaction. In addition, stock market reaction is insignificant to AI-related hardware patents and increasing radicalness does not influence this relationship. The findings are robust to excluding large firms representing a significant portion of the AI patents. With increasing radicalness, the stock market reaction to machine learning patents is more positive for low temporal depth and exacerbates with higher patent pedigree. The findings have implications for AI patenting among firms in the service sector.

The Bright Side of Risk-Taking: Evidence From Financial Analysts

This study investigates the relationship between analysts’ facial width-to-height ratio (fWHR) and their selected forecast boldness under different conditions (e.g., tournament condition and skill levels). The aim is to determine if fWHR captures innate or calculated risk-taking preferences. Supplementary tests reveal that high-fWHR analysts issuing bold forecasts achieve more favorable outcomes in terms of job promotion and forecast accuracy compared with their low-fWHR peers, providing supporting evidence that fWHR is associated with calculated risk-taking. In addition, tests conducted on stock price non-synchronicity and market reaction to bold forecasts for high- versus low-fWHR analysts suggest that high-fWHR analysts possess more firm-specific private information. JEL Codes: M20, M40, M41, G24

Reward or punishment? The impact of heterogeneous environmental regulatory intervention on the firm market value

AbstractEnvironmental regulations are important organizational strategic drivers. Environmental regulatory mechanisms include “carrots” or “sticks”—they can be incentive or coercion‐based. This study empirically investigates stock market reactions to various environmental regulatory mechanisms. Using a sample of 334 environmental regulatory events reported by 212 listed Chinese firms between 2010 and 2020, we find that monetary reward has a greater positive market reaction towards governmental reward than non‐monetary reward. We also find that governmental operational disruption penalties have a greater negative market reaction than operational non‐disruption penalties. Governmental levels of the environmental regulation implementation subject do not play a moderating role in the relationship between governmental regulations and firm market value. These findings provide various policy and organizational insights as businesses seek to meet legitimacy gains in response environmental regulatory mechanisms.

Pengaruh Dividen, Pertumbuhan Aset, dan Volume Perdagangan terhadap Volalitas Harga Saham JII70

Purpose: The study is intended to empirically examine the fundamental factors of micro companies in influencing stock price volatility in the Jakarta Islamic Index 70 From the period 2019-2023. The form of Islamic stock market reaction in the Jakarta Islamic Index 70 is shown by fluctuations resulting in stock price volatility events in the 2019-2020 period. Through this research, the fundamental factors taken, namely the distribution of company dividends, the growth of company assets, and the volume of stock trading in stocks in JII70 for the 2019-2020 period. Research Methodology: With data from the Indonesian stock exchange from 2019 to 2022, comparative descriptive approaches and quantitative methodologies were employed in this study. Purposive sampling was used to sample, and it revealed 18 businesses that fit the bill. Results: The findings results of the study, which was conducted on 18 companies listed on the Jakarta Islamic Index 70 during the 2019-2022 period, showed that stock price volatility was influenced by variable dividend payout ratios with a significant value of 0.048, stock trading volume was also influential with a significant value of 0.041, and was not influenced by asset growth variables. Limitation: Some scientific limitations in this study, that this analysis only includes 3 independent variables whose capacity to explain the dependent variable is still somewhat limited. The companies listed in the Jakarta Islamic Index are 70, producing a small research sample and the research period is still relatively short. Contribution: The results of this study will likely be applied in investment decision-making. Businesses with concerns about fluctuations, and stock price volatility can also utilize this research's findings as knowledge.

Media coverage of corporate wrongdoing: International evidence on the stock market reaction and the buffering effect of prior corporate social performance

AbstractUsing an international sample of 111,251 news published in print, online, and social media between 2007 and 2021 covering 3202 firms in 20 countries, I find that superior prior corporate social performance (CSP) buffers the adverse market reaction to media coverage of corporate social irresponsibility (CSI), indicating that stakeholders interpret the misbehaviour as an anomaly rather than a pattern. Generally, the magnitude of the negative market reaction to CSI news intensified over time, confirming increased social awareness of corporate responsibility. I complement existing literature by revealing a diminishing marginal benefit of prior CSP: the buffering effect is consistently positive while strongly flattening, suggesting that stakeholders are somewhat indifferent between good and excellent CSP but highly sensitive towards previous misbehaviour. The shareholder value loss and insurance‐like effect of prior CSP are enhanced for firms located in stakeholder‐oriented business cultures, indicating that societal culture shapes stakeholders' attitudes towards corporate responsibility.

Market risk exposure determinants during the COVID-19 outbreak: between competitiveness and inequality

PurposeThe objective of this research is to identify the economic, demographic, sanitary and even cultural factors which explain the variability in the cross-section of returns in different markets globally during the first weeks after the outbreak of COVID-19.Design/methodology/approachBuilding on the event study methodology and using seemingly unrelated equations, the authors created several indicators on the impact of the pandemic in 75 different markets. Then, and using cross-sectional regressions robust to heteroscedasticity and using an algorithm to select independent variables from more than 30 factors, the authors determine which factors were behind the different stock market reactions to the pandemic.FindingsHigher currency depreciation, inflation, interest rate or government deficit led to higher returns, while higher life expectancy, ageing population, GDP per capita or health spending led to the opposite effect. However, the positive effect of competitiveness and the negative effect of income inequality stand out for their statistical and economic significance.Originality/valueThis research provides a global view of investors' reaction to an extreme and unique event. Using a sample of 75 capital markets and testing the relevance of more than 30 variables from all categories, it is, to the authors' knowledge, the largest and most ambitious study of its kind.