Does the sentiment of investors explain differences between predicted and realized stock prices?

2016 ◽  
Vol 33 (3) ◽  
pp. 403-416 ◽  
Author(s):  
Stella N. Spilioti
Keyword(s):  
Stock Prices ◽  
Psychological Factors ◽  
Stock Exchange ◽  
Estimation Errors ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Macroeconomic Conditions ◽  
Fundamental Value ◽  
Using Data ◽  
Fundamental Values

Purpose The purpose of this paper is to use the Barberis et al. (1998)’s valuation model to calculate the fundamental value of a stock and examine whether the differences between predicted and realized stock prices are explained both by psychological factors (that affect investor reaction to information) and by key macroeconomic variables. Design/methodology/approach This paper adopts a time-series analysis, as well as a panel data approach, to examine whether the price deviations from fundamental values are because of macroeconomic and psychological factors, using data from the London Stock Exchange. Findings The results indicate that these differences are explained by important macroeconomic variables, as well as by the sentiment of investors (that is used as a proxy of the psychological factors). Originality/value Based on the above results, this paper suggests that the price deviations from fundamental values are not treated as model estimation errors as proposed by Penman and Sougiannis (1998) but rather as deviations that are because of psychological factors, as well as to macroeconomic conditions.

Canonical correlation analysis

2014 ◽  
Vol 6 (2) ◽  
pp. 179-196 ◽  
Author(s):  
Peter Mazuruse
Keyword(s):  
Correlation Analysis ◽  
Stock Returns ◽  
Canonical Correlation Analysis ◽  
Stock Prices ◽  
Canonical Correlation ◽  
Price Index ◽  
Stock Exchange ◽  
Consumer Price Index ◽  
Content Type ◽  
Macroeconomic Variables

Purpose – The purpose of this paper was to construct a canonical correlation analysis (CCA) model for the Zimbabwe stock exchange (ZSE). This paper analyses the impact of macroeconomic variables on stock returns for the Zimbabwe Stock Exchange using the canonical correlation analysis (CCA). Design/methodology/approach – Data for the independent (macroeconomic) variables and dependent variables (stock returns) were extracted from secondary sources for the period from January 1990 to December 2008. For each variable, 132 sets of data were collected. Eight top trading companies at the ZSE were selected, and their monthly stock returns were calculated using monthly stock prices. The independent variables include: consumer price index, money supply, treasury bills, exchange rate, unemployment, mining and industrial index. The CCA was used to construct the CCA model for the ZSE. Findings – Maximization of stock returns at the ZSE is mostly influenced by the changes in consumer price index, money supply, exchange rate and treasury bills. The four macroeconomic variables greatly affect the movement of stock prices which, in turn, affect stock returns. The stock returns for Hwange, Barclays, Falcon, Ariston, Border, Caps and Bindura were significant in forming the CCA model. Research limitations/implications – During the research period, some companies delisted due to economic hardships, and this reduced the sample size for stock returns for respective companies. Practical implications – The results from this research can be used by policymakers, stock market regulators and the government to make informed decisions when crafting economic policies for the country. The CCA model enables the stakeholders to identify the macroeconomic variables that play a pivotal role in maximizing the strength of the relationship with stock returns. Social implications – Macroeconomic variables, such as consumer price index, inflation, etc., directly affect the livelihoods of the general populace. They also impact on the performance of companies. The society can monitor economic trends and make the right decisions based on the current trends of economic performance. Originality/value – This research opens a new dimension to the study of macroeconomic variables and stock returns. Most studies carried out so far in Zimbabwe zeroed in on multiple regression as the central methodology. No study has been done using the CCA as the main methodology.

Absence of the weekend effect and industry-style portfolios

2019 ◽  
Vol 12 (4) ◽  
pp. 463-475
Author(s):  
Selma Izadi ◽  
Abdullah Noman
Keyword(s):  
New York ◽  
Stock Market ◽  
Structural Breaks ◽  
Stock Exchange ◽  
Structural Break ◽  
Weekend Effect ◽  
Content Type ◽  
Market Portfolio ◽  
The Us ◽  
Using Data

Purpose The existence of the weekend effect has been reported from the 1950s to 1970s in the US stock markets. Recently, Robins and Smith (2016, Critical Finance Review, 5: 417-424) have argued that the weekend effect has disappeared after 1975. Using data on the market portfolio, they document existence of structural break before 1975 and absence of any weekend effects after that date. The purpose of this study is to contribute some new empirical evidences on the weekend effect for the industry-style portfolios in the US stock market using data over 90 years. Design/methodology/approach The authors re-examine persistence or reversal of the weekend effect in the industry portfolios consisting of The New York Stock Exchange (NYSE), The American Stock Exchange (AMEX) and The National Association of Securities Dealers Automated Quotations exchange (NASDAQ) stocks using daily returns from 1926 to 2017. Our results confirm varying dates for structural breaks across industrial portfolios. Findings As for the existence of weekend effects, the authors get mixed results for different portfolios. However, the overall findings provide broad support for the absence of weekend effects in most of the industrial portfolios as reported in Robins and Smith (2016). In addition, structural breaks for other weekdays and days of the week effects for other days have also been documented in the paper. Originality/value As far as the authors are aware, this paper is the first research that analyzes weekend effect for the industry-style portfolios in the US stock market using data over 90 years.

How Moroccan institutional investors view dividend policy

2017 ◽  
Vol 43 (12) ◽  
pp. 1332-1347 ◽  
Author(s):  
H. Kent Baker ◽  
Imad Jabbouri
Keyword(s):  
Institutional Investors ◽  
Stock Prices ◽  
Dividend Policy ◽  
Stock Exchange ◽  
Mail Survey ◽  
High Response Rate ◽  
Content Type ◽  
Listed Firms ◽  
Dividend Policies ◽  
Dividend Payments

Purpose The purpose of this paper is to examine how Moroccan institutional investors view dividend policy. It discusses the importance these investors attach to the dividend policy of their investee firms, how much influence they exercise in shaping investee firms’ dividend policies, their reactions to changes in dividends, and their views on various explanations for paying dividends. Design/methodology/approach A mail survey provides a respondent and firm profile and responses to 28 questions involving various explanations for paying dividends and 30 questions on different dividend issues. Findings Institutional investors attach substantial importance to dividend policy and prefer high dividend payments. Although liquidity needs are a major driver, taxes play little role in shaping dividend preferences. Respondents agree with multiple explanations for paying dividends giving the strongest support to catering, bird-in-the-hand, life cycle, signaling, and agency theories. Research limitations/implications Despite a high response rate, the number of respondents limits partitioning the sample and testing for significant differences between different groups. Practical implications The lack of communication between Casablanca Stock Exchange (CSE) listed firms and institutional investors may depress stock prices and increase volatility. The results suggest agency problems and a weak governance environment at the CSE. Originality/value This study documents the importance that institutional investors place on dividend policy, their reactions to changes in their investees’ dividend policy, and the methods used to influence these firms. It extends previous research by reporting the level of support Moroccan institutional investors give to various explanations for paying dividends.

Business strategy and tax aggressiveness in Brazil

2019 ◽  
Vol 12 (4) ◽  
pp. 522-535
Author(s):  
Antonio Lopo Martinez ◽  
Bruno Afonso Ferreira
Keyword(s):  
Business Strategy ◽  
Stock Exchange ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Strategy Type ◽  
Clear Result ◽  
The Usa ◽  
Reactor Types ◽  
Using Data ◽  
The Relationship

Purpose The purpose of this paper is to analyse the relationships between company business strategy type and tax aggressiveness for companies listed on the Brazilian Bovespa stock exchange. Design/methodology/approach Following the concepts of Miles and Snow (1978, 2003), we classified company strategies into four types, analyser, defender, prospector and reactor, using data from 2012 to 2016. The authors excluded financial companies due to a differential tax regime. Next, prospector and defender companies were identified, and the relationship of these strategies with tax aggressiveness assessed using regression analysis; analyser and reactor types were not included as these are defined as a combination of the prospector and defender type, or non-strategic, respectively. To assess aggressiveness, the authors used effective tax rates on corporate profits, as well as a metric that captures tax burden in terms of all taxes paid by a company. Findings Most Brazilian companies were analysers (76.66 per cent), with prospector companies being a minority, and defenders representing a little over 21 per cent. Unlike the findings of Higgins et al. (2015), the authors found that defender companies also have a tendency to practice aggressive tax planning. Practical implications The authors found the Brazilian defender companies similar to prospectors, tended to be more tax aggressive or to take higher tax risks. Thus, findings in economies such as the USA may not be generalizable to other countries, such as Brazil, Russia, India or China (i.e. the BRICs), for example. The particularities of each country, such as ease of access to the capital market, tax deductibility of investment in research and development and legal issues must be considered before applying generalized prognostics. Originality/value This paper offers original empirical evidence from Brazil of the relationship between company strategy type and the tax aggressiveness, offering a clear result that differs in part from results from American companies. It therefore encourages further studies on this topic.

Audit prices and Big 4 fee premiums: further evidence from Thailand

2017 ◽  
Vol 7 (1) ◽  
pp. 2-15 ◽  
Author(s):  
Thanyawee Pratoomsuwan
Keyword(s):  
Price Competition ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Usa ◽  
Using Data

Purpose Because there is mixed evidence regarding Big N fee premiums across countries, the purpose of this paper is to re-examine the phenomenon of audit price differentiations in the market for auditing services in Thailand. Although Hay et al. (2006) and Hay (2013) reviewed over 80 audit fee papers from 20 countries over 25 years, 13 of which were based in emerging economies, the understanding of the market for auditing services in Thailand remains limited. Because the Thai auditing market is also classified as a segmented market – i.e., a market that is less competitive for large-client firms and more competitive for small-client firms – this study tests audit price competition in an emerging audit market using Thailand as an example. Design/methodology/approach The traditional audit fee model is used to estimate audit fee premiums for a sample of over 300 non-financial companies listed on the Stock Exchange of Thailand in 2011. Findings Although the market for auditing services in Thailand is consistent with that described in Ferguson et al. (2013) – in which Big N audit firms dominate only the large-client segment – the results show that Big N auditors charge higher audit fees and earn higher fee premiums compared with non-Big N auditors in both the small- and large-client segments of the audit market. Research limitations/implications The evidence from this study reveals the existence of Big N fee premiums across market segmentations. Audit price differentials between Big N and non-Big N firms in both small- and large-client market segments might concern regulators regarding competition in the audit market with respect to whether the Big N firms are charging uncompetitive audit fees. These findings also imply that audit pricing varies across countries and the Big N price deferential is typically larger in emerging markets than in more developed audit markets and that it might be inadequate to study single-country audit pricing. However, the question whether the Big N fee premium results from Big N product differentiation is not directly investigated in this study. Originality/value Because earlier studies focusing on audit fee premiums have been conducted using data from the USA and Australia, the findings add to the limited evidence regarding audit fee premiums in an emerging country such as Thailand.

scholarly journals Performance comparison between Islamic and conventional stocks: evidence from Pakistan's equity market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Munazza Jabeen ◽  
Saba Kausar
Keyword(s):  
Stock Prices ◽  
Stock Exchange ◽  
Equity Market ◽  
Performance Comparison ◽  
Parametric Estimation ◽  
Total Risk ◽  
Excess Returns ◽  
Content Type ◽  
Practical Implications ◽  
Non Parametric

PurposeThis paper aims to examine the performance of Islamic and conventional stocks listed at the Pakistan Stock Exchange by using both parametric and non-parametric approaches. The motivation is to do risk-return analysis of Islamic stock prices and conventional stock prices.Design/methodology/approachIt uses various measures of performance, e.g. Sharpe ratio, Treynor ratio, Jensen's alpha, beta, generalized auto-regressive conditional heteroskedasticity and stochastic dominance. Using the Karachi Meezan Index-30 (KMI-30) and the Karachi Stock Exchange Index-30 (KSE-30) as proxies for Islamic and conventional stock prices, respectively, it examines the performance of Islamic and conventional stocks. The daily data of KMI-30 and KSE-30, covering period from June 9, 2009 to June 20, 2020 are used.FindingsThe results show that the overall KMI-30 outperforms the KSE-30. The returns of the KMI-30 are greater than the KSE-30. However, the risk and volatility of the KMI-30 and KSE-30 are similar. Further, the KMI-30 has higher excess returns per unit of total risk than the KSE-30. But both indexes have similar excess returns per unit of systematic risk. Moreover, the KMI-30 returns have stochastically dominance over the KSE-30 returns. These results reveal that the Islamic index performs better than the conventional index.Practical implicationsThe findings provide several practical implications in financial and investment decisions making by investors, managers and policymakers such as strategies for asset allocation and investment. Further, in risk management, it provides guidance for allocating portfolios and managing risk. The investment in Islamic stocks may mitigate potential risk within asset portfolios.Originality/valueThis research is unique in its approach to the analysis of the performance comparison of conventional and Islamic stock by using comprehensive parametric and non-parametric estimation techniques. Such research has not been undertaken in the Pakistan's equity market since.

scholarly journals The Impact of Macroeconomic Variables on Stock Prices: An Empirical Analysis of Islamabad Stock Exchange

2014 ◽  
Vol 10 (2) ◽  
pp. 73-93
Author(s):  
Nosheen Rasool ◽  
Muhammad Mubashir Hussain
Keyword(s):  
Exchange Rate ◽  
Significant Relationship ◽  
Stock Prices ◽  
Price Index ◽  
Stock Exchange ◽  
Foreign Exchange Reserves ◽  
Macroeconomic Variables ◽  
Production Index ◽  
Long Run ◽  
The Impact

The purpose of this study was to analyze long-run causal relationship between ISE (Islamabad Stock Exchange) and macroeconomic variables in Pakistan and also find out the direction of causality. The impact of macroeconomic variables on stock prices of ISE has not been previously discussed by the researchers. The monthly data from January 2001 to December 2010 was used in this study. The set of macroeconomic variables include Exchange Rate (ER), Foreign Exchange Reserves (FER), Industrial Production Index (IPI), Interest Rate (IR), Imports (M), Money Supply (MS), Wholesale Price Index (WPI) and Exports (X). Descriptive statistics and Unit root test, Johansen Co-integration Technique and Granger Causality Technique were employed to analyze the long-run and causal relationship between the macroeconomic variables and stock prices.  The results revealed that M showed positive and significant relationship but Foreign Exchange Reserves (FER) and Industrial Production Index (IPI) indicated positive and insignificant relationship with the stock prices. Exchange rate(ER), Money supply (MS) and  Whole sale price index(WPI) showed negative but significant relationship while Interest  rate (IR) and Export( X )indicated a negative and insignificant relationship with the stock prices. The findings of Granger Causality revealed that only exports showed a unidirectional causal relationship. 

Does intellectual capital have any influence on stock price crash risk?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Agung Nur Probohudono ◽  
Adelia Dyaning Pratiwi ◽  
Mahameru Rosy Rochmatullah
Keyword(s):  
Intellectual Capital ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Exchange ◽  
Investor Sentiment ◽  
Price Volatility ◽  
Crash Risk ◽  
Company Performance ◽  
Content Type ◽  
The Impact

PurposeThis paper explores the influence between intellectual capital (IC) and the risk of stock price crashes by using company performance as an intervening variable.Design/methodology/approachThis study empirically analyzes the impact of the efficiency of IC on stock price crash risk using a sample size of 152 companies listed on the Indonesia Stock Exchange (IDX) during 2018. To test the research hypotheses, regression analysis and path analysis were applied. In addition, the researchers added exploration to several studies to strengthen the results of this study.FindingsThis study’s findings indicate that investors' optimistic (pessimistic) sentiment regarding stock price volatility has obscured aspects of the financial performance of listed companies. This finding implies that investor sentiment has dominated influence on stock price crash risk so that the aspects of IC are obscured.Originality/valueThis research provides new information that IC disclosure in the stock market needs to include knowledge of the volatility of stock prices in order to reveal stock price crash risk.

Auditor rotations and audit quality

2019 ◽  
Vol 27 (4) ◽  
pp. 639-660 ◽  
Author(s):  
Devi Sulistyo Kalanjati ◽  
Damai Nasution ◽  
Karin Jonnergård ◽  
Soegeng Sutedjo
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Multivariate Regression Analysis ◽  
Cumulative Number ◽  
Firm Level ◽  
Content Type ◽  
Audit Firm ◽  
Audit Firms ◽  
Using Data

Purpose The purpose of this paper is to investigate the association between audit rotation – at the audit partner and audit firm level – and audit quality. As mentioned in the literature, audit rotation has several benefits, and one of them is it can bring a fresh look to audit tasks and subsequently improve audit quality. Moreover, audit itself can help a client to improve its financial reporting. However, ineffective communication between predecessor and successor audit partners or audit firms, and pseudo-rotation can hamper that benefit. Design/methodology/approach This study uses multivariate regression analysis to test its hypotheses. Using data from companies listed on the Indonesia Stock Exchange, the sample consists of 688 company-year observations covering the period 2003–2016. Findings This study finds that the cumulative number of audit partner rotations is positively associated with audit quality, indicating that rotations at the audit partner level will enhance audit quality. Conversely, it finds that the cumulative number of audit firm rotations is negatively associated with audit quality. Practical implications The study’s findings may assist regulators in crafting standards regarding audit rotation. As the findings show, audit partner rotation will improve audit quality, but the audit firm rotation will decrease audit quality. As this study tries to explain the decreasing audit quality from audit firm rotation could be a consequence of ineffective communication or pseudo audit firm rotation. Regulators should try to tackle these problems. Originality/value Instead of using tenure as a proxy for a rotation, this study creates a new proxy named the cumulative number of audit partner and audit firm rotations to provide evidence on the benefits of audit rotation.

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