scholarly journals Accounting Scandal Announcements: A Test Of Market Efficiency

2011 ◽  
Vol 3 (3) ◽  
Author(s):  
Dana McLeod ◽  
Judith A. Laux
Keyword(s):  
Stock Market ◽  
Empirical Test ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Font Size ◽  
Market Inefficiencies ◽  
Accounting Scandals ◽  
One Year ◽  
Return Reversals ◽  
Share Value

<p class="MsoBodyTextIndent2" style="text-align: justify; text-indent: 0in; margin: 0in 0.5in 0pt;"><span style="font-style: normal; font-size: 10pt; mso-bidi-font-size: 12.0pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This paper examines the hypothesis that the stock market overreacted to accounting scandals during 2002, resulting in extensive drops in share value followed by return reversals that reveal market inefficiencies.<span style="mso-spacerun: yes;">&nbsp; </span>Data are gathered for nine firms directly involved in an accounting scandal, as well as the major competitors of those firms.<span style="mso-spacerun: yes;">&nbsp; </span>An empirical test of returns for all thirty-three firms reveals that an investment strategy of selling short scandal firms and their competitors, followed by a contrarian investment strategy of buying those same stocks, resulted in risk-adjusted returns well above those expected for a period of one year after the scandal.<span style="mso-spacerun: yes;">&nbsp; </span>These results reveal stock market inefficiencies and a potential to realize abnormal returns by capitalizing on investor overreaction.<span style="mso-spacerun: yes;">&nbsp; </span></span></span></p>

scholarly journals Enterprise Multiple and Future Returns of the Brazilian Stock Market

2017 ◽  
Vol 10 (3) ◽  
pp. 431
Author(s):  
Rafael Igrejas ◽  
Raphael Braga Da Silva ◽  
Marcelo Cabus Klotzle ◽  
Antonio Carlos Figueiredo Pinto ◽  
Paulo Vitor Jordão da Gama Silva
Keyword(s):  
Risk Factors ◽  
Stock Market ◽  
Cross Section ◽  
Predictive Power ◽  
Abnormal Returns ◽  
Strong Relationship ◽  
Investment Strategy ◽  
Emerging Countries ◽  
Investment Strategies ◽  
Developed Markets

The estimation of cross-section returns for defining investment strategies based on financial multiples has been proven to be relevant following Fama and French’s (1992) research. One of the challenges for such studies is to identify the main variables that are suitable for explaining the returns in a particular context because the variables that are widely used in developed markets behave differently in emerging countries. In this study, we analyze the predictive power of the EV/EBITDA multiple in the context of the Brazilian stock market. The results show that the analyzed multiple has a strong relationship with the future returns of companies listed on the BM&F BOVESPA index between 2005 and 2013. For the period under review, the investment strategy of purchasing stocks when EV/EBITDA was low and selling stocks when EV/EBITDA was high showed abnormal returns of 15.94% per year, even after controlling for risk factors.

scholarly journals Misvaluation and behavioral bias in the Brazilian stock market

2019 ◽  
Vol 30 (79) ◽  
pp. 107-122
Author(s):  
José Bonifácio de Araújo Júnior ◽  
Otávio Ribeiro de Medeiros ◽  
Olavo Venturim Caldas ◽  
César Augusto Tibúrcio Silva
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Time Window ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Short Term ◽  
Publicly Traded Companies ◽  
Behavioral Biases ◽  
Three Samples ◽  
Investment Portfolios

ABSTRACT The study sought to apply the model developed by Gokhale et al. (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country. The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year. From the FVI index, the undervalued shares were identified, indicating that the sales price does not reflect their economic fundamentals, and portfolio simulations were carried out for investment over three months or the next year. The results indicate the possible existence of overreaction and behavioral biases in the Brazilian stock market, which lead to the possibility of higher abnormal returns than those of the Ibovespa. Similar to the US market, at the end of the 2006-2016 period simulated portfolios yielded more than 274%, while the Ibovespa yielded approximately 80%. The robustness tests attest to the effectiveness of the model. The various investment portfolios, simulated over different time horizons, yielded more than the Ibovespa on average. The study also confirmed the assumptions of Gokhale, Tremblay, and Tremblay (2015) regarding the model's inadequacy for short-term strategies.

scholarly journals The Performance of Trading Strategies Based on Deviations from Put-Call Parity of Stock Options

2021 ◽  
pp. 29-47
Author(s):  
Han-Ching Huang ◽  
Chien-Sheng Wen
Keyword(s):  
Abnormal Return ◽  
Implied Volatility ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Investment Horizon ◽  
Two Dimensional ◽  
One Dimensional ◽  
Holding Period ◽  
One Year ◽  
Better Than

According to Cremers and Weinbaum [6], we compute the implied volatility spread by option put-call parity theory. Then, we build strategy based on implied volatility spread and compares it with OS, 52-week high, and contrarian investment strategies to explore whether the investment performance of the implied-volatility-spread based strategy is better than other strategies. Moreover, we combine the implied-volatility-spread based strategy with other strategies to form the two-dimensional investment strategy to explore whether the performance of two-dimensional implied-volatility-spread strategy is better than one-dimensional implied-volatility-spread strategy. The empirical results show that it needs more than one year of investment horizon to get positive abnormal return by implied-volatility-spread based strategy. Otherwise, it will only receive negative abnormal return when the investment horizon is less than one year. In addition, two-dimensional strategy improves bad performance of one-dimensional strategy. After combining the contrarian 52-week high and contrarian investment strategy with implied-volatility-spread strategy, we find that there is the best strategic effect when the holding period is 12 months. Nevertheless, the abnormal returns decrease after the holding period is 24 months. JEL classification numbers: G11, G12. Keywords: Implied-volatility-spread, OS strategy, 52-week highs strategy, Trading volume strategy, Price momentum strategy, Option volume.

scholarly journals A Study on the Relationship between Monetary Policy Variables and Stock Market

2017 ◽  
Vol 13 (1) ◽  
pp. 218
Author(s):  
Song Li
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Causal Relationship ◽  
Money Supply ◽  
Financial Institutions ◽  
Empirical Test ◽  
Market Price ◽  
Integration Test ◽  
Lending Rate ◽  
One Year

Through the analysis of monetary policy variables and stock market from January 2010 to December 2015, including money supply M1, M2,one-year Benchmark lending rate for financial institutions，interbank offered rate, and the stock market price index data, through correlation analysis, unit root test, co-integration test, Granger causality test and VAR model test, empirical test results show that there is a two-way causal relationship between money supply M1 and stock market , M2 and stock market have a one-way causal relationship from M2 to stock market. One-year benchmark lending rate for financial institutions and stock market have a one-way causal relationship from stock market to one-year benchmark lending rate for financial institutions. The interbank offered rate and the stock market have a one-way causal relationship from the stock market to the interbank offered rate. China's transmission channels between monetary policy and stock market exist, but is not sound and there is a delay. When using the monetary policy variable to adjust the stock market, the money supply policy is more useful than adjusting the interest rate.

scholarly journals Mega-sporting events: The impact on host stock markets and investment prospects

2015 ◽  
Vol 12 (2) ◽  
pp. 222-235
Author(s):  
Sameera Mohamed ◽  
Tyron Oettlé ◽  
Sinead Stewart
Keyword(s):  
Stock Market ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Investment Strategies ◽  
Sporting Events ◽  
World Cup ◽  
Fifa World Cup ◽  
Sporting Event ◽  
Actual Event ◽  
The Impact

The success of mega-sporting events such as the Summer Olympics and the FIFA World Cup brings pride and a focus to their host nations. This paper aims to find the effects of the announcement and the actual event on the host stock market. It then recommends an investment strategy. The paper finds that the announcement of the Olympics and World Cup creates statistically significant abnormal returns and the actual sporting event has little effect on the stock market. By factoring size of the economy, it is found that smaller economies tend to have larger abnormal returns than bigger economies. We then provide recommendation on investment strategies in order to exploit the significant abnormal return on the day of the World Cup announcement

The Effects of Share Repurchase Announcements on Returns in the Malaysia Stock Market

2018 ◽  
Vol 1 (1) ◽  
pp. 1 ◽  
Author(s):  
Tze San Ong ◽  
Pei San Ng
Keyword(s):  
Stock Market ◽  
Abnormal Return ◽  
Small Firms ◽  
Abnormal Returns ◽  
Share Repurchase ◽  
Before And After ◽  
Positive Abnormal Return ◽  
Repurchase Announcements ◽  
Signaling Hypothesis ◽  
Firm Characteristic

This paper examines the market response surrounding the share repurchase announcements of Malaysia Listed Companies from years 2012 to 2016. One sample T-test was carried out to identify the abnormal return in the range before and after 20 days from share repurchase announcements. The result shows a significant positive abnormal return in the day of repurchase announcements and continuously until day 1 after the announcements. Multiple regression analysis was performed in order to identify the firm characteristic of share repurchase. The finding is supported with information asymmetric, which shows that stock market reacts more favorably through the repurchase announcements by small firms than large firms. This study is consistent with the signaling hypothesis that shows share repurchase announcement can be an effective tool in stabilizing the stock market in Malaysia. The finding of this study acts as a useful tool for managers and investors to improve their decisions on share repurchase announcements in Malaysia. Company’s managers can conduct share repurchase announcements that are able to make the stock market react positively in order to generate positive abnormal returns.

scholarly journals Price adjustments on the Johannesburg Stock Exchange for unexpected and dramatic news events: An empirical analysis

1989 ◽  
Vol 20 (3) ◽  
pp. 119-128 ◽  
Author(s):  
N. Bhana
Keyword(s):  
Empirical Analysis ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Short Term ◽  
Johannesburg Stock Exchange ◽  
Price Adjustments ◽  
Weak Evidence ◽  
News Events ◽  
One Year

The objective of this study is to determine whether companies listed on the Johannesburg Stock Exchange overreacted to unexpected favourable and unfavourable company-specific news events during the period 1970 - 1984. The JSE appears to be inefficient in reacting to the announcement of unfavourable news; economically significant abnormal returns up to one year following the event are observed. The JSE does not appear to overreact to news of a favourable nature, there is only weak evidence of short-term overreaction. The selling pressure caused by panic selling could depress prices well below levels justified by the unfavourable news. The magnitude of the overreaction to unfavourable news is sufficient to enable astute investors to outperform the market by taking positions in these securities. Knowledge of the pattern of market overreaction can also be of value to investors for transactions that are to take place anyway.

scholarly journals The Impact of COVID-19 on the Stock Price of Socially Responsible Enterprises: An Empirical Study in Taiwan Stock Market

2021 ◽  
Vol 18 (4) ◽  
pp. 1398
Author(s):  
Kuo-Jung Lee ◽  
Su-Lien Lu
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Recovery Phase ◽  
Socially Responsible ◽  
Cumulative Impact ◽  
Study Approach ◽  
Price Performance ◽  
The Impact

This study examines the impact of the COVID-19 outbreak on the Taiwan stock market and investigates whether companies with a commitment to corporate social responsibility (CSR) were less affected. This study uses a selection of companies provided by CommonWealth magazine to classify the listed companies in Taiwan as CSR and non-CSR companies. The event study approach is applied to examine the change in the stock prices of CSR companies after the first COVID-19 outbreak in Taiwan. The empirical results indicate that the stock prices of all companies generated significantly negative abnormal returns and negative cumulative abnormal returns after the outbreak. Compared with all companies and with non-CSR companies, CSR companies were less affected by the outbreak; their stock prices were relatively resistant to the fall and they recovered faster. In addition, the cumulative impact of the COVID-19 on the stock prices of CSR companies is smaller than that of non-CSR companies on both short- and long-term bases. However, the stock price performance of non-CSR companies was not weaker than that of CSR companies during times when the impact of the pandemic was lower or during the price recovery phase.

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