Search results

The purpose of this paper is to investigate a unique sample of lottery-like stocks and contextualize their short-run price behavior with respect to behavioral principles.

The authors conduct a short-run event-study of the abnormal returns for stock market investments in Australian small-cap oil and gas (O & G) explorers centered on the drilling commencement (spudding) of 157 wildcat oil or gas wells drilled between January 2000 and June 2010.

Small-cap stock market investments associated with newly spudded wildcat O & G wells are negative NPV gambles rather than fair (zero NPV) investments. Once a wildcat well is spudded, the 30-day expected abnormal return is 6-8 percent: wealth-maximizing stockholders are advised to sell upon news of spudding, but gamblers may wish to hold on for the chance of a 10.6 percent 30-day average abnormal return (if the well is not plugged and abandoned). In the lead-up to each gamble the authors observe a significant pre-spudding stock price run-up on average, perhaps indicative of positively affected investors aroused by an easily imagined successful wildcat gusher as per evidence on the influence of image and affect on investors’ decisions (MacGregor et al., 2000; Loewenstein et al., 2001; Rottenstreich and Hsee, 2001; Peterson, 2002).

The wildcat drilling events considered in this paper are lottery-like by nature, and spudding represents the distinct moment when the gamble is unambiguously on, following shortly on from which investors either strike it lucky or strike out. The specifically small-cap wildcatters are typically heavily vested in one well at a time, therefore the sample stocks are uniquely lottery like. This differs from other studies which infer the lottery-like nature of their sample stocks from characteristics such as price and idiosyncratic volatility.

Introduction: According to the effective market hypothesis, investors act rationally when making an investment decision. The hypothesis assumes that investors invest in a way that maximizes their returns, taking into account the new information received. If the information released on the market is interpreted in the same way by all investors, no investor would be able to earn above the market. This hypothesis is valid in case of efficient markets. In the event that investors show irrational behavior to the information released on the market, the markets move away from efficiency. Overreaction behavior is one of the non-rational behaviors of investors. Overreaction behavior involves investors overreacting by misinterpreting the new information released to the market. According to De Bondt and Thaler’s (1985), overreaction hypothesis in the event that investors overreact to the news coming to the market, after a period the false evaluation, the price of the security is corrected with the reversal movement, without the need of any positive or negative information. Aim: The purpose of this study is to examine investors’ overreaction behavior in mergers and acquisitions. For this purpose, overreaction behavior was analyzed for companies whose stocks are traded on the Borsa Istanbul, which were involved in mergers or acquisitions. Method: In the study, companies that made mergers and acquisitions for the period 2007–2017 were determined, and abnormal returns and cumulative abnormal returns were calculated by using monthly closing price data of these companies. Moreover, whether investors overreact to the merger and acquisition decision is examined separately for one-, three- and five-year periods. Findings: As a result of the research, it has been observed that there is a reverse return for one-, three-, and five-year periods. However, it has been determined that the overreaction hypothesis is valid for only one year.

We investigate the impact of the creation of a new incentive structure for CEOs resulting from firms introducing equity-based compensation (EBC) as a means of paying top executives on policy decisions. Contrasting a firm’s stock and operating performance in the period the CEO is compensated with EBC (EBC period) and the period when EBC is not a component of the same executive’s pay (No EBC period) leads us to conclude that awarding stock options and restricted shares to executives is not associated with improved firm performance. However, firms initiate EBC after superior performance suggesting that CEOs are awarded compensation in this form as a reward for past performance. Firms have higher unsystematic and total risk levels in the EBC period suggesting EBC influences CEOs’ risk-taking behavior and reduces agency costs arising from managerial risk aversion. While there is no change in R&D expenses and cash ratios there is a decrease in capital expenditures in the EBC period, which is consistent with reduced overinvestment agency costs. Finally, leverage and payout ratios are similar in both periods implying that firms’ financing policy is not influenced by changes in CEOs’ compensation structure.

The purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in Shanghai Stock Exchange (SSE) Composite 50 index.

To capture overreaction effect in the stock listed at SSE 50 Index, a time series analysis of average cumulative abnormal return within a unified framework is applied for the period of January 2009 to December 2015. From these loser and winner portfolios, contrarian strategy is applied to build arbitrage portfolio, which is the difference of mean reversions between loser and winner portfolios. The portfolio construction is based on a 12-month formation period and 6-month testing period for intermediate-term analysis and. for short-term analysis, 6 month formation and 3 month testing periods. The authors also applied regression analysis to test a return reversal effect for the sampled period.

Results show that contrarian strategy yields positive excess returns for the arbitrage portfolio for most of the testing periods. The intermediate baseline case shows the arbitrage portfolio producing an average excess return of 14.1%, while even the short-term one produces 4%, which is statistically significant at the 5% level. The study finds asymmetrical overreactions in the SSE especially for loser portfolios. The biggest winner and loser portfolios follow the mean reversal effect. Moreover, before-after test for the biggest winner and loser portfolios shows that the losers recovered and beat the market immediately.

The study could benefit government, policy makers and regulators by studying how presence of more individual investors than institutional investors of China stock market leads to more irrational decisions giving rise to volatility. The regulators could build favourable policies for institutional investors to give them incentive to invest more than individual investors through which market volatility could be controlled.

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. The authors provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

This research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. We provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

Outlines previous research on the underpricing of initial public offerings (IPOs), describes the institutional framework for IPOs in Malaysia and presents a study of long run Malaysian IPO performance using 1992‐1996 data on 258 IPOs, classified into growth or value portfolios. Explains the methodology and presents the results, which show that value IPOs outperform growth IPOs, while both outperform the market. Finds their cumulative market adjusted return (averaged at 41.7 per cent) positively correlated with book‐to‐market equity, earnings‐to‐price, cashflows‐to‐price and the time lag between close of application and actual listing; and negatively related to the IPO price and size. Briefly considers consistency with other research and the market implications.

The purpose of this paper is to investigate the effect of bond issuance announcements on share price returns in three emerging markets and examine the characteristics of bond issues that affect the abnormal share price returns of the company.

This study employs event study, correlation and multiple regression techniques to attain the research objectives. The authors test hypotheses on 105 public listed companies from Malaysia, Singapore and Thailand, during the period of 2008–2014.

The findings show positive cumulative average abnormal returns resulting from the announcement of corporate bond issuance for Malaysia, Singapore and Thailand. The results reveal that there is a significant effect of bond issuance announcements on share price returns. The results also disclose that the market is not efficient at its semi-strong form as proposed by the market efficiency hypothesis.

The results provide better references for fund managers and investors in capital markets to take advantage of the abnormal returns resulting from bond issuance announcements.

Using an event study approach, this analysis examines whether or not intracompany mergers of subsidiary banks by multibank holding companies result in significant, positive, abnormal stock returns. Such a result implies that investors expect this type of merger will improve future profitability, presumably by permitting efficiencies to be realized or revenues to increase. The analysis of the stock returns for a sample of 39 consolidating companies indicates that this is the case. These findings appear to be quite robust. Furthermore, the findings imply that permitting holding companies with interstate operations to consolidate their banking units across state lines could yield efficiencies as proponents of interstate branching claim.

The purpose of this paper is to investigate the intraday effect of nature disaster (external inevitable factor) and production safety accident (PSA) (internal factor regarding management level) announcement on stock price in China’s stock markets.

Using high-frequency data, this study adopts event study method to examine the intraday abnormal returns as well as the volatility of stock price before and after the announcement of nature disaster and PSA.

First, both nature disaster announcement and PSA announcement produce negative effects on stock returns. However, there are some differences in effects between the different types of announcement. Second, it is just within the event day (announcement day if trading day, otherwise the first trading day after announcement) that the volatility of stock price is distinctly increased by the two kinds of announcement. Third, there are some differences in the impacts of nature disaster announcement on firms in different industries. Finally, there are also some differences observed between the impacts of PSA announcement on chemical firms and other firms.

It is the first time that using high-frequency data to analyze the intraday impact of nature disaster and PSA announcement on stock short price behavior. The results can help us to understand the role of market microstructure playing in the process of stock price formation, especially the stock price movements before and after disaster and accident announcement and the sensitivity to the announcement. The empirical results have important implications for investors when making trading decisions, and for market regulators when setting trading rules.

Increasingly, U.S. firms voluntarily issue standalone corporate social responsibility (CSR) reports to demonstrate to society a commitment to social and environmental activities (Bebbington, Larrinaga, & Moneva, 2008; Erusalimsky, Gray, & Spence, 2006). To ascertain the effect of standalone CSR reports on investors, we compared the association between CSR performance scores and subsequent stock returns for firms that issue standalone CSR reports versus those that do not. Consistent with a signaling perspective (Akerlof, 1970), we found that firms that voluntarily issue standalone CSR reports have a stronger association between total CSR and CSR strengths and subsequent stock returns than firms that do not. Our findings indicated that investors are relying on standalone CSR reports because they reward CSR performance for firms that issue standalone CSR reports CSR performance for those that do not issue standalone CSR reports.

This study examines share price reaction to the enrollment by companies in the Children’s Food and Beverage Advertising Initiative. We find that, on average, in the month of enrollment, shareholders of companies that join the CFBAI experience abnormal return of −3% and so do the shareholders of the immediate competitors that do not join the initiative. However, over the subsequent five years, while the shareholders of companies enrolled in the initiative experience an average abnormal return of +16.6%, that of non-enrolled competitors experience a further abnormal return of −34%. The abnormal returns for the two groups (at the time of enrollment and over the subsequent five years) are uncorrelated and so benefitting at the expense of competitors does not appear to be the motive for enrolling in the CFBAI. The study also provides comparison of number of employees and other important financial ratios before and after enrollment in the CFBAI for the two groups.