Price Reversals After Extreme Price Shocks: Impact of Earnings Information With Time Series Evidence From Emerging Market

2021 ◽  
pp. 0148558X2110652
Author(s):  
T. G. Saji
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Predictive Power ◽  
Stock Exchange ◽  
Emerging Market ◽  
Vector Autoregressive ◽  
Share Prices ◽  
Earnings Information ◽  
Price Reversal ◽  
Potential Maximum

The purpose of the article is to analyze the relevance of earnings fundamentals in predicting extreme price reversals of an emerging stock market. We collect monthly price data on six sector indices from Bombay Stock Exchange (BSE) of India for the period 2004–2019. The research decomposes industry stock returns into Potential Maximum Gains (PMG) and Potential Maximum Losses (PML) with price extremes at first and then tests price reversal behavior using Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) and vector autoregressive (VAR) models. The study finds symmetry between PMG and PML in the banking, realty, and oil sectors, while the asymmetric reversal behavior is noted in the automobiles and capital goods industries. The presence of industry fundamentals in the models estimating the reversal behavior of share prices enhances their predictive power, which suggests the significance of value strategies in making gains from extreme price variations. The price reversal behavior is sector specific and found inconsistent in emerging market. Hence, the investors cannot overlook the relevance of the industry characteristics and earnings fundamentals while predicting the stock price behavior in emerging markets.

Stock Market Reaction on Green-Bond Issue: Evidence from Indian Green-Bond Issuers

2021 ◽  
pp. 097226292110225
Author(s):  
Rakesh Kumar Verma ◽  
Rohit Bansal
Keyword(s):  
Stock Returns ◽  
Financial Institutions ◽  
Stock Price ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Developed Countries ◽  
Low Carbon ◽  
Bond Issue ◽  
The Government ◽  
The Impact

Purpose: A green bond is a financial instrument issued by governments, financial institutions and corporations to fund green projects, such as those involving renewable energy, green buildings, low carbon transport, etc. This study analyses the effect of green-bond issue announcement on the issuer’s stock price movement. It shows the reaction of the stock price after the issue of green bonds. Methodology: This study is based on secondary data. Green-bond issue dates have been collected from newspaper articles from different online sources, such as Business Standard, The Economic Times, Moneycontrol, etc. The closing prices of stocks have been taken from the NSE (National Stock Exchange of India Limited) website. An event window of 21 days has been fixed for the study, including the 10 days before and after the issue date. Data analysis is carried out through the event study method using the R software. Calculation of abnormal returns is done using three models: mean-adjusted returns model, market-adjusted returns model and risk-adjusted returns model. Findings: The results show that the issue of green bonds has a significant positive effect on the stock price. Returns increase after the green-bond issue announcement. Although the announcement day shows a negative return for all the samples taken for the study, the 10-day cumulative abnormal return (CAR) is positive. Thus, green-bond issues lead to positive sentiments among investors. Research implications: This research article will help the government issue more green bonds so that the proceeds can be utilized for green projects. The government should motivate corporations and financial institutions to issue more green bonds to help the economy grow. In India, very few organizations have issued a green bond. It will be beneficial if these players issue green bonds, as it will increase the firms’ value and boost returns to the investors. Originality/value: The effect of green-bond issue on stock returns has been analysed in some studies in developed countries. This is the first study to examine the impact of green-bond issue on stock returns in the Indian context, to the best of our knowledge.

Conditional stock liquidity premium: is Warsaw stock exchange different?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Szymon Stereńczak
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Stock Exchange ◽  
Emerging Market ◽  
Market Liquidity ◽  
Investment Horizon ◽  
Liquidity Premium ◽  
Stock Liquidity ◽  
Content Type ◽  
Bear Market

Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

scholarly journals Margin requirements and Stock Market Volatility in Bangladesh

2012 ◽  
Vol 3 (2) ◽  
pp. 29
Author(s):  
A. F. M. Mainul Ahsan ◽  
Mohammad Osman Gani ◽  
Md. Bokhtiar Hasan
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Stock Exchange ◽  
Price Volatility ◽  
Market Volatility ◽  
Stock Market Volatility ◽  
Margin Requirements ◽  
Margin Requirement ◽  
Daily Stock Returns ◽  
The Impact

Officially margin requirements in bourses in Bangladesh were initiated on April 28, 1999, to limit the amount of credit available for the purpose of buying stocks. The goal of this paper is to measure the impact of changing margin requirement on stock returns' volatility in Dhaka Stock Exchange (DSE). The impact of margin requirement on stock price volatility has been extensively studied with mixed and ambiguous results. Using daily stock returns, we found mixed evidence that SEC's margin requirements have significant impact on market volatility in DSE.

scholarly journals Key Fundamental Factors and Long-run Price Changes in an Emerging Market—A Case Study of Karachi Stock Exchange (KSE)

2002 ◽  
Vol 41 (4II) ◽  
pp. 517-533 ◽  
Author(s):  
Mohammad Irfan Chaudhary ◽  
Mohammed Nishat
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Emerging Market ◽  
Share Price ◽  
Relevant Factor ◽  
Direct Relation ◽  
Price Changes ◽  
Important Indicator ◽  
Share Prices ◽  
Long Run

Share prices are the most important indicator readily available to the investors for their decision to invest or not in a particular share. Theories suggest that share price changes are associated with changes in fundamental variables which are relevant for share valuation like payout ratio, dividend yield, capital structure, earnings size of the firm and its growth, [Wilcox (1984); Rappoport (1986); Downs (1991)]. Linter (1956) linked dividend changes to earnings while Shapiro valuation model (1962) showed dividend streams discounted by the difference in discount rate and growth in dividend should be equal to share price. This predicts direct relation between pay out ratio and the price-earning multiple. Conversely it means that there is an inverse relation between pay out ratio and share price changes. Several eventbased studies established direct relation between share price changes and either earnings or dividend changes [Ball and Brown (1968); Baskin (1989)]. Sharpe (1964) and Hamada (1972) suggested direct relation between share price changes and capital structure. Beaver, Kettler and Sholes (1970) showed that firms appear to pay less of their earnings if they have higher earning volatility. This suggests payout ratio as relevant factor for share price changes. Investigations of share price changes appear to yield evidence that changes in fundamental variable(s) should jointly bring about changes in share prices both in developed and emerging markets. However, the actual fundamental factors found to be relevant may vary from market to market. For example, changes in asset growth of firms are significant in the case of Japanese shares while earnings appear to be universally a relevant factor [Ariff, et al. (1994)]. However, it is widely agreed that a set of fundamental variables as suggested by individual theories is no doubt relevant as possible factors affecting share price changes in the short and the long-run [Ariff and Khan (2000)].

scholarly journals FACTORS AFFECTING OPERATING CASH FLOW TO STOCK RETURN THROUGH STOCK PRICE

2018 ◽  
Vol 5 (2) ◽  
Author(s):  
Aprih . Santoso
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Return ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Financial Statements ◽  
Manufacturing Companies ◽  
Operating Cash Flow

Abstract : Companies need funds in order to carry out operations such as the financing of production activities, pay employees, pay other expenses related to the operation of the company. One way to obtain these funds is to attract investors to invest in companies in the form of stock, but in making this investment is certainly not easy for investors, because investors need consideration beforehand to find out how the company's performance. The purpose of this study was to examine and analyze the effect of operating cash flow to stock return through stock price at companies listed on the Stock Exchange Year 2012-2015. The data used in this study dala are secondary data from the financial statements of companies listed on the Indonesia Stock Exchange period 2012 - 2015. The data are in the form of financial statements can be obtained from the Indonesian Capital Market Directory (ICMD), the IDX website www.idx.co. id as well as from various other sources to support this research. The population in this research is manufacturing companies listed on the Stock Exchange the period 2012 - 2015. The samples taken by the sampling technique used purposive sampling.From the test results and analysis of the data it can be concluded that operating cash flow directly and indirectly has no effect on stock returns through stock prices showed no significant results. Keywords :  Operating Cash Flow, Stock Price, Stocks Return

scholarly journals Systematic illiquidity, characteristic illiquidity, and stock returns: Timeseries analysis

2022 ◽  
Vol 9 (2) ◽  
pp. 72-80
Author(s):  
Soltane et al. ◽  
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Timeseries Analysis ◽  
The Relationship

The objective of this research is to investigate the relationship between illiquidity and stock prices on the Tunisian stock exchange. While previous researches tended to focus on one form of illiquidity to examine this relationship, our study unifies three forms of illiquidity at the same time. Indeed, we simultaneously consider illiquidity as systematic risk, as a characteristic of the market, and as a characteristic of the stock. The aggregate illiquidity of the market is the average of individual stock illiquidity. The illiquidity risk is the sensitivity of the stock price to illiquidity shocks. Shocks of market illiquidity are estimated by the innovations in the expected market illiquidity. Results show that investors on the Tunisian stock exchange do not require higher returns when they expect a rise of market illiquidity, whereas investors on U.S markets are compensated for higher expected market illiquidity. In addition, shocks of market illiquidity provoke a fall in stock prices of small caps, while large caps are not sensitive to market illiquidity shocks. This differs slightly from results based on U.S. data where illiquidity shocks reduce all stock prices but most notably those of small caps. Robustness tests validate our findings. Our results are consistent with previous studies which reported that the “zero-return” ratio predicts significantly the return-illiquidity relationship on emerging markets.

scholarly journals The Effect of Volatility Expectations on Large Stock Price Changes

2018 ◽  
Vol 1 (2) ◽  
pp. 94
Author(s):  
Andrey Kudryavtsev
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Trading Volume ◽  
Opposite Sign ◽  
Company Size ◽  
Price Changes ◽  
Price Reversal ◽  
Future Outcomes

<p><em>My study explores the effect of future volatility expectations, embedded in VIX index, on large daily stock price changes and on subsequent stock returns. Following both psychological and financial literature claiming that good (bad) mood may cause people to perceive positive (negative) future outcomes as more probable and that the changes in the value of VIX may be negatively correlated with contemporaneous investors’ mood, I hypothesize that if a major positive (negative) stock price move takes place on a day when the value of VIX falls (rises), then its magnitude may be amplified by positive (negative) investors’ mood, creating price overreaction to the initial company-specific shock, which may result in subsequent price reversal. In line with my hypothesis, I document that both positive and negative large price moves accompanied by the opposite-sign contemporaneous changes in VIX are followed by significant reversals on the next two trading days and over five- and twenty-day intervals following the event, the magnitude of the reversals increasing over longer post-event windows, while large stock price changes taking place on the days when the value of VIX moves in the same direction are followed by non-significant price drifts. The results remain robust after accounting for additional company (size, beta, historical volatility) and event-specific (stock’s return and trading volume on the event day) factors, and are stronger for small and volatile stocks.</em></p>

Evaluation Markers and Mitigators in Analyst Reports in Light of Market Response to Stock Recommendations

2018 ◽  
Vol 55 (3) ◽  
pp. 310-337 ◽  
Author(s):  
Karol Marek Klimczak ◽  
Marta Dynel
Keyword(s):  
Stock Exchange ◽  
Emerging Market ◽  
Writing Skills ◽  
Professional Writing ◽  
Specific Group ◽  
Stock Recommendations ◽  
Share Prices ◽  
Analyst Behavior ◽  
Warsaw Stock Exchange

Professionals and individuals who invest in equity markets rely on financial analysts’ recommendations and reports to decide on what to invest in and when to trade. This study examines the role of two groups of communication strategies, evaluation markers and mitigators, in establishing analysts’ credibility. The sample consists of 80 reports written in Polish for companies listed on the Warsaw Stock Exchange in Poland. In this emerging market setting, where credibility is challenged by uncertainty, analysts deploy various strategies depending on the recommendation they make: “buy,” “hold,” or “sell” shares. The findings point toward a specific group of mitigators, namely subjectivization, as a means of communicating expert opinion. Regression results reveal that investors’ reaction to the publication of a recommendation to “hold” or “sell” shares, measured based on the changes in share prices, is stronger when subjectivization is used in a report. The findings carry implications for research into analyst behavior and for the development of professional writing skills.

Effect of Dividend Policy on Stock Price Volatility in Nigeria Stock Exchange

2019 ◽  
Vol 9 (2) ◽  
pp. 219
Author(s):  
Felix Ebun Araoye ◽  
Akinola Michael Aruwaji ◽  
Emmanuel OlusuyiAjayi
Keyword(s):  
Stock Price ◽  
Dividend Policy ◽  
Positive Impact ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Price Volatility ◽  
Share Price ◽  
Dividend Payout ◽  
Share Prices ◽  
Duration Effect

This paper seeks to determine the effect of dividend policy and dividend payment on share price volatility in Nigeria. Several literatures have showed evidence that dividend policy vary inversely proportional with share price volatility with duration effect. The study used data from the actively trading companies listed in the Nigeria Securities Exchange for a period of ten (10) years from 2005–2014. The estimation is based on panel data analysis between dividend policy measures (dividend payout, dividend per share, earnings after tax, dividend declared and number of share) and Share price volatility. The findings from the random effects regression results showed dividend per share is the major determinants of share price volatility in NSE (β = 0.6870, ρ<0.05). Dividend payout ratio negatively affect share price volatility (β =0.612, ρ>0.05) and earnings after tax negatively affect share price volatility (β =0.038, ρ>0.05).Thus, the higher the payout ratio the less the share price volatility, and the higher the earnings after tax lower the share price volatility. In conclusion, dividend per share has positive effect and inclusive relationship with market share prices. It is recommended that firms should try and improve on their financial performance that will enable consistent increase in the dividend per share for positive impact on market value.

IMMEDIATE AND LONGER-TERM STOCK PRICE DYNAMICS FOLLOWING LARGE STOCK PRICE CHANGES

2020 ◽  
Vol 15 (01) ◽  
pp. 2050002
Author(s):  
ANDREY KUDRYAVTSEV
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Trading Volume ◽  
Abnormal Returns ◽  
Market Model ◽  
Conditional Volatility ◽  
Short Term ◽  
Price Increases ◽  
Cumulative Abnormal Returns ◽  
Price Reversal

The study explores the correlation between the immediate and the longer-term stock returns following large daily price moves. Following the previous literature, which documents a tendency for price reversals after initial large price moves, I suggest that if a large stock price move is immediately followed by a short-term price drift, then it may indicate that the company-specific shock is more completely incorporated in the stock price, significantly increasing the probability of subsequent longer-term price reversal. Analyzing a vast sample of large stock price moves, I document that negative (positive) longer-term stock price reversals after large price increases (decreases) are significantly more pronounced if the latter are immediately followed by relatively high (low) short-term cumulative abnormal returns, that is, by short-term price drifts. The effect remains significant after accounting for additional company-specific (size, market model beta, historical, or conditional volatility) and event-specific (stock’s return and trading volume on the event day) factors.

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