Does the short squeeze lead to market abnormality and antileverage effect? Evidence from the Gamestop case

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Evangelos Vasileiou
Keyword(s):  
Time Series ◽  
Financial Markets ◽  
Stock Returns ◽  
Empirical Evidence ◽  
Abnormal Returns ◽  
Abnormal Behavior ◽  
Garch Models ◽  
Content Type ◽  
Intraday Data ◽  
The Asymmetry

PurposeThis study examines the Gamestop (GME) short squeeze in early 2021. Using intraday data for the period 4/1/2021–5/2/2021, the author provides empirical evidence that the GME stock price exhibited abnormal behavior.Design/methodology/approachThe author uses the popular Runs test to show that the GME returns were not randomly distributed, which is an indication of a violation of the Efficient Market Hypothesis (EMH). The main objective of the paper is to provide new quantitative evidence that stock returns are abnormal when short squeeze conditions emerge. The author employs the asymmetry Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) models (the Exponential GARCH (EGARCH) and the Threshold GARCH (TGARCH)) and provides evidence that an exceptional time series feature emerged during the examined period: the antileverage effect.FindingsThe results show that the GME returns were not randomly distributed during the examined period and the asymmetry GARCH models indicate that, in contrast to what the time series normally show, volatility increased when the GME prices increased.Research limitations/implicationsThis paper presents a new/alternative approach for the study of EMH and abnormal returns in financial markets. Further studies on market performance during similar short squeeze conditions should be carried out in order to obtain empirical evidence for the antileverage effect abnormality.Practical implicationsThis paper could be useful for scholars who examine the EMH in financial markets because it suggests an additional method for testing abnormalities. It also presents a useful tool that allows practitioners to monitor for indications of abnormality in the stock market during a short squeeze, since the emergence of the antileverage abnormality could function as such an indication. Additionally, the outcome of this analysis could be useful for regulators because coordination among investors is easier than ever in the Internet era and such events may happen again in the future; even under normal (not short squeeze) conditions and lead to market instability.Originality/valueThis research differs from other studies that examine the GME case because it presents a new way to quantitatively present the abnormal performance of the stock markets for reasons that could be linked with the emergence of short squeeze conditions.

Stock markets' reaction to COVID-19: evidence from the six WHO regions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Ali Al-Qudah ◽  
Asma Houcine
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Early Stage ◽  
Eastern Mediterranean ◽  
Abnormal Returns ◽  
Western Pacific ◽  
Content Type ◽  
Panel Data Regression ◽  
Daily Stock Returns ◽  
The Impact

PurposeThis study investigates the effects of the COVID-19 outbreak on daily stock returns for the six major affected WHO Regions, namely: Africa, Americas, Eastern Mediterranean, Europe, South-East Asia and Western Pacific.Design/methodology/approachThis study uses an event study method and panel-data regression models to examine the effect of the daily increase in the number of COVID-19 confirmed cases on daily stock returns from 1 March to 1 August 2020 for the leading stock market in major affected countries in the WHO regions.FindingsThe results reveal an adverse impact of the daily increasing number of COVID-19 cases on stock returns and stock markets fell quickly in response to the pandemic. The findings also suggest that negative market reaction was strong during the early stage of the outbreak between the 26th and 35th days after the initial confirmed cases. We further find that stock markets in the Western Pacific region experienced more negative abnormal returns as compared to other regions. The results also confirm that feelings of fear among investors turned out to be a mediator and a transmission channel for the effect of COVID-19 outbreak on the stock markets.Research limitations/implicationsThis study contributes to financial literature in two ways. First, we contribute to existing literature that has examined the effect of various catastrophes and crises on the stock markets Second, we contribute to the recent emerging literature that examines the impact of COVID-19 on financial markets.Practical implicationsThe study may have implications for policymakers to deal with this outbreak without triggering uncertainty in stock markets and reassure investors' confidence. The study may also be of interest to investors, managers, financial analysts by revealing how the stock markets quickly respond to outbreaks.Originality/valueThis study is the first study to examine the impact of the COVID-19 outbreak on the leading stock markets of the WHO regions.

The impact of qualified audit opinion on stock returns: an empirical study at Amman stock exchange

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rana Bayo Flees ◽  
Sulaiman Mouselli
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Market Model ◽  
Content Type ◽  
Going Concern ◽  
Study Approach ◽  
Audit Opinions ◽  
The Impact ◽  
First Time

Purpose This paper aims to investigate the impact of qualified audit opinions on the returns of stocks listed at Amman Stock Exchange (ASE) after the introduction of the recent amendments by the International Auditing and Assurance Standard Board (IAASB) on audits reporting and conclusions. It further investigates if results differ between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. Design/methodology/approach Audit opinions’ announcements and stock returns data are collected from companies’ annual reports for the fiscal years 2016 to 2019 while stock returns are computed from stock closing prices published at ASE website. The authors apply the event study approach and use the market model to calculate normal returns. Cumulative abnormal returns (CARs) and average abnormal returns (AARs) are computed for all qualified audit opinions’ announcements. Findings The empirical evidence suggests that investors at ASE do not react to qualified audit opinions announcements. That is, the authors find an insignificant impact of qualified audit opinion announcements on stock returns using both CAR and AAR estimates. The results are robust to first time and sequenced qualifications, and for qualifications with going concern. Results are also robust to the use of risk adjusted market model. Research limitations/implications The insignificant impact of qualified audit opinions on stock returns have two potential conflicting research implications. First, the new amendments introduced to auditors’ report made them more informative and reduce the negative signals contained in the qualified opinions. That is, investors are now aware of the real causes of qualifications and not overreacting to the qualified opinion. Second, the documented insignificant impact confirms that ASE is not a semi-strong form efficient. Practical implications The apparent excessive use of qualifications should ring the bell on whether auditors misuse their power or companies are really in trouble. Hence, the Jordanian regulatory bodies need to warn auditors against the excessive use of qualifications on the one hand, and to raise the awareness of investors on the implications of auditors’ opinions on the other hand. Originality/value This study is innovative in twofold. First, it explores the impact of qualified audit opinions on stock returns after the introduction of new amendments by IAASB at ASE. In addition, it uses event study approach and distinguishes between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. The results are consistent with efficient market theory and behavioral finance explanations.

A new look at the meeting clustering effect

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ángel Pardo ◽  
Eddie Santandreu
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Relevant Information ◽  
Investor Attention ◽  
Content Type ◽  
Potential Link ◽  
Clustering Effect ◽  
Trading Volumes ◽  
The Relationship

PurposeThe study aims to test the existence of a meeting clustering effect in the Spanish Stock Exchange (SSE).Design/methodology/approachThis paper studies the relationship between the clustering of annual general meetings and stock returns in the SSE. A multivariate analysis is carried out in order to analyse the relationship between monthly returns and the clustering of general meetings in the SSE.FindingsThe authors show that meeting clustering exists and that some months exhibit significant and positive additional returns related to the holding of ordinary or extraordinary general meetings.Research limitations/implicationsThe authors have explored some possible explanations for the meeting clustering effect, such as a potential link with the “Halloween” effect or the presence of higher-than-normal levels of volatility, trading volumes or investor attention. However, none of these can explain the meeting clustering effect that emerges as a new anomaly in the SSE.Practical implicationsThe authors have documented significant and positive abnormal returns in some months that coincide with the holding of general meetings. Therefore, the holding of ordinary and/or extraordinary meetings in some months involves the release of relevant information for investors.Originality/valueThis study complements the financial literature because it is focused on the clustering of meetings and its effect on a stock market whose legal order is based on civil law. This fact allows us to shed new light on meeting clustering and its effect on other types of markets.

Do firms harvest from political connections during general elections? Case of Pakistan

2020 ◽  
Vol 27 (1) ◽  
pp. 258-273
Author(s):  
Ayesha Ashraf ◽  
M. Kabir Hassan ◽  
Khurram Abbas ◽  
Qamar Uz Zaman
Keyword(s):  
Stock Returns ◽  
Abnormal Returns ◽  
Share Price ◽  
Market Model ◽  
Political Connections ◽  
Content Type ◽  
Connected Group ◽  
Playing Field ◽  
General Elections ◽  
The Impact

Purpose This paper aims to examine the impact of general elections on the stock returns of the politically connected group affiliated firms of Pakistan. Design/methodology/approach This study uses the market model to assess the impact of political connections (PCs) on abnormal stock returns, before and after election events. We have used share price data of non-financial firms of Pakistan for the years 2008-2013. Findings It has been found that behavior of cumulative average abnormal returns (CAAR) is significantly different for standalone and politically connected group affiliated firms. The results reveal that CAARs of politically connected group affiliated firms have experienced less deviation as compared to stand alone firms. Therefore, it is argued that politically connected group firms may reduce the impact of political uncertainty on stock returns in comparison to stand alone firms. Practical implications This study is helpful for policy regulators of Pakistan to devise appropriate policies to maintain a level playing field for politically connected and standalone firms. Originality/value This study provides a new dimension to understand the role and association of PCs and general elections with stock markets returns.

Short-term performance of stocks after fraudulent financial reporting announcement

2019 ◽  
Vol 26 (2) ◽  
pp. 464-476 ◽  
Author(s):  
Mehmet Eryigit
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Financial Reporting ◽  
Abnormal Return ◽  
Fraudulent Financial Reporting ◽  
Short Term ◽  
Content Type ◽  
Publicly Traded Companies ◽  
Company Stock

Purpose Availability of accurate and reliable information in financial markets helps investors make well-informed decisions on capital allocations which is beneficial for long-term economic growth. In this regards, the role of auditing firms that inspect the financial statements of the publicly traded companies in sound operation of financial markets has been increasing. The Capital Market Board of Turkey (CMBT) has the task and responsibility of investigating fraudulent information disseminated by the firms whose stocks are traded in Borsa Istanbul. The investigations can lead to monetary penalties if fraud is proven and the results are published by CMBT in its weekly bulletin. The present study aims to examine the effect of announcements of financial irregularities of companies in CMBT Bulletin on the performance of the relevant company stock in the short term. Design/methodology/approach This study uses abnormal return, cumulative abnormal return and cumulative average abnormal return as metrics and parametric, as well as non-parametric tests to ascertain whether the announcements of financial irregularities in company operations have any statistically significant effect on the return of its stock. Findings The results indicate that publication of the financial penalty news by CMBT in its bulletin has almost no statistically significant influence on the performance of the relevant companies’ stock in Borsa Istanbul. The findings indicate that either the investors in this particular markets do not consider such news relevant to long-term success of the firm or the announcement does not provide any new information and penalties have been priced into the stock before the announcement in the bulletin. Originality/value In literature there is no more research about the effect of the announcements of administrative monetary penalties and crime complaints on the stock returns.

Gender matters: market perception of future performance

2020 ◽  
Vol 46 (10) ◽  
pp. 1247-1262
Author(s):  
Kylie A. Braegelmann ◽  
Nacasius U. Ujah
Keyword(s):  
Financial Markets ◽  
Gender Bias ◽  
Firm Size ◽  
Market Reaction ◽  
Abnormal Returns ◽  
Capital Allocation ◽  
Event Window ◽  
Content Type ◽  
Window Approach ◽  
Over Time

PurposeThis paper aims to revisit the extant evidence on gender bias in the market. Specifically, it revisits reaction to CEO announcements. Also, it explores whether the development of the bias over time and by firm size aligns with existing theory.Design/methodology/approachThe paper examines cumulative abnormal returns around CEO announcements from 1992 through 2016 using a modified event study methodology. This evidence shown examines market reactions over time and by firm size.FindingsFinancial markets react more favorably to male CEO announcements, with a cumulative abnormal return of 49 basis points above the reaction to their female counterparts. Moreover, the paper finds that market reaction varies over time, which may be because of the increasing proportion of female CEOs, and by firm size, which may be due to the differences in new information available to investors.Research limitations/implicationsLimitations include sample size due to the paucity of female CEO announcements. This paper does not examine the effect of industry, detailed CEO characteristics or announcement content on market reaction. In addition, using an extended event window may increase the likelihood of capturing confounding events, such as mergers or earnings announcements, which limits the interpretability of the results.Practical implicationsGender bias in financial markets creates another institutional barrier for the advancement of female professionals, as well as implies inefficient capital allocation in markets.Originality/valueThe literature in this field is still inconclusive. Furthermore, bias development over time and the effect of information on bias remain unexplored. This study aims to fill that gap; furthermore, it introduces an extended event-window approach.

scholarly journals Daily abnormal price changes and trading strategies in the FOREX

2020 ◽  
Vol 48 (1) ◽  
pp. 211-222
Author(s):  
Guglielmo Maria Caporale ◽  
Alex Plastun
Keyword(s):  
Design Methodology ◽  
Abnormal Returns ◽  
Trading Strategies ◽  
Price Changes ◽  
Content Type ◽  
Cumulative Abnormal Returns ◽  
Market Inefficiency ◽  
Intraday Data ◽  
Abnormal Profits ◽  
New Evidence

PurposeThis paper explores abnormal price changes in the FOREX by using both daily and intraday data on the EURUSD, USDJPY, USDCAD, AUDUSD and EURJPY exchange rates over the period 01.01.2008–31.12.2018.Design/methodology/approachIt applies a dynamic trigger approach to detect abnormal price changes and then various statistical methods, including cumulative abnormal returns analysis, to test the following hypotheses: the intraday behaviour of hourly returns on overreaction days is different from that on normal days (H1), there are detectable patterns in intraday price dynamics on days with abnormal price changes (H2) and on the following days (H3).FindingsThe results suggest that there are statistically significant differences between intraday dynamics on days with abnormal price changes and normal days respectively; also, prices tend to change in the direction of the abnormal change during that day, but move in the opposite direction on the following day. Finally, there exist trading strategies that generate abnormal profits by exploiting the detected anomalies, which can be seen as evidence of market inefficiency.Originality/valueNew evidence on abnormal price changes and related trading strategies in the FOREX.

Herding behavior in Islamic GCC stock market: a daily analysis

2018 ◽  
Vol 11 (2) ◽  
pp. 182-193 ◽  
Author(s):  
Mustapha Chaffai ◽  
Imed Medhioub
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Financial Markets ◽  
Stock Returns ◽  
Stock Markets ◽  
Content Type ◽  
Quantile Regression Analysis ◽  
Herd Behaviour ◽  
The Impact ◽  
Quantile Regression Method

Purpose This paper aims to examine the presence of herd behaviour in the Islamic Gulf Cooperation Council (GCC) stock markets following the methodology given by Chiang and Zheng (2010). Generalized auto regressive conditional heteroskedasticity (GARCH)-type models and quantile regression analysis are used and applied to daily data ranging from 3 January 2010 to 28 July 2016. Results show evidence of herd behaviour in the GCC stock markets. When the data are divided into down and up market periods, herd information is found to be statistically significant and negative during upward market periods only. These results are similar to those reported in some emerging markets such as China, Japan and Hong Kong, where stock returns perform more similarly during down market periods and differently during rising markets. Design/methodology/approach The authors present a brief literature on herd behaviour. Second, the authors provide some specificity of the GCC Islamic stock market, followed by the presentation of the methodology and the data, results and their interpretation. Findings The authors take into account the difference existing in market conditions and find evidence of herding behaviour during rising markets only for GCC markets. This result was confirmed after using the quantile regression method, as evidence of herding was observed only in highly extreme periods. Stock returns perform more similarly when market is down in Islamic GCC stock market. Research limitations/implications The research limitation consists in the fact that this work can be extended to compare the GCC stock markets with other markets in Asia such as Malaysia and Indonesia. Practical implications The principal implication consists in the fact that herding behaviour is limited in the GCC markets and Islamic finance can have an important contribution to moderate the behaviour in the financial markets. Social implications The work focusses on the role of ethics in the financial markets and their ability to reduce the impact of behavioural biases. Originality/value The paper studies the behaviour of investors in the Islamic financial markets and gives an idea about the importance of the behaviour in this particular market regarding its characteristics.

More than just Noise? Examining the Information Content of Stock Microblogs on Financial Markets

2018 ◽  
Vol 33 (1) ◽  
pp. 50-69 ◽  
Author(s):  
Ting Li ◽  
Jan van Dalen ◽  
Pieter Jan van Rees
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Information Content ◽  
Computational Linguistics ◽  
Trading Volume ◽  
Abnormal Returns ◽  
Feature Reduction ◽  
Individual Investors ◽  
Market Sentiment ◽  
Aggregation Of Information

Scholars and practitioners alike increasingly recognize the importance of stock microblogs as they capture the market discussion and have predictive value for financial markets. This paper examines the extent to which stock microblog messages are related to financial market indicators and the mechanism leading to efficient aggregation of information. In particular, this paper investigates the information content of stock microblogs with respect to individual stocks and explores the effects of social influences on an interday and intraday basis. We collected more than 1.2 million stock-related messages (i.e., tweets) related to S&P 100 companies over a period of 7 months. Using methods from computational linguistics, we went through an elaborate process of message feature reduction, spam detection, language detection, and slang removal, which has led to an increase in classification accuracy for sentiment analysis. We analyzed the data on both a daily and a 15-min basis and found that the sentiment of messages is positively affected with contemporaneous daily abnormal stock returns and that message volume predicts 15-min follow-up returns, trading volume, and volatility. Disagreement in microblog messages positively influences stock features, both in interday and intraday analysis. Notably, if we give a greater share of voice to microblog messages depending on the social influence of microbloggers, this amplifies the relationship between bullishness and abnormal returns, market volume, and volatility. Following knowledgeable investors advice results in more power in explaining changes in market features. This offers an explanation for the efficient aggregation of information on microblogging platforms. Furthermore, we simulated a set of trading strategies using microblog features and the results suggest that it is possible to exploit market inefficiencies even when transaction costs are included. To our knowledge, this is the first study to comprehensively examine the association between the information content of stock microblogs and intraday stock market features. The insights from the study permit scholars and professionals to reliably identify stock microblog features, which may serve as valuable proxies for market sentiment and permit individual investors to make better investment decisions.

scholarly journals The use of the recognition heuristic as an investment strategy in European stock markets

2017 ◽  
Vol 22 (43) ◽  
pp. 207-223 ◽  
Author(s):  
Júlio Lobão ◽  
Luís Pacheco ◽  
Carlos Pereira
Keyword(s):  
Financial Markets ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Google Trends ◽  
Recognition Heuristic ◽  
Monthly Basis ◽  
Content Type ◽  
Additional Information ◽  
Market Portfolio ◽  
Heuristic Strategies

Purpose People often face constraints such as a lack of time or information in taking decisions, which leads them to use heuristics. In these situations, fast and frugal rules may be useful for making adaptive decisions with fewer resources, even if it leads to suboptimal choices. When applied to financial markets, the recognition heuristic predicts that investors acquire the stocks that they are aware of, thereby inflating the price of the most recognized stocks. This paper aims to study the profitability against the market of the most recognized stocks in Europe. Design/methodology/approach In this paper, the authors perform a survey and use Google Trends to study the profitability against the market of the most recognized stocks in Europe. Findings The authors conclude that a recognition heuristic portfolio yields poorer returns than a market portfolio. In contrast, from the data collected on Google Trends, weak evidence was found that strong increases in companies monthly search volumes may lead to abnormal returns in the following month. Research limitations/implications The applied investment strategy does not account for transaction costs, which may jeopardize its profitability given the fact that it is necessary to revise the portfolio on a monthly basis. Despite the results obtained, they are useful to understanding the performance of recognition heuristic strategies over a comprehensive time horizon, and it would be interesting to depict its viability during different market conditions. This analysis could provide additional information about a preferable scenario for employing our strategies and, ultimately, enhance the profitability of recognition heuristic strategies. Practical implications Through the exhaustive analysis performed here on the recognition heuristic in the European stock market, it is possible to conclude that no evidence was found for the viability of exploring this type of strategy. In fact, the investors would always gain better returns when adopting a passive investment strategy. Therefore, it would be wise to assume that the European market presents at least a degree of efficiency where no investment would yield abnormal returns following the recognition heuristic. Originality/value The main objective of this paper is to study the performance of the recognition heuristic in the financial markets and to contribute to the knowledge in this field. Although many authors have already studied this heuristic when applied to financial markets, there is a lack of consensus in the literature.

Sign in / Sign up

Export Citation Format

Share Document