The influence of systematic risk factors and econometric adjustments in catastrophic event studies

Event study methodology is a well-accepted technique in finance. Although its application is popular, there have not been many critical assessments of this practice. For instance, in the estimation process, the researcher has to make a choice in terms of which asset pricing model to adopt when calculating expected returns. Different expected return models and financial econometrics adjustments may give rise to different results. This study explores seven commonly employed approaches. Using terrorist attacks and the subprime crisis as events, we calculate abnormal returns with different expected return techniques and then assess if there is a change in the result. Our evidence shows that the results vary according to the choice of the technique in estimating an expected return.     

Assessing the effectiveness of Covid-19 financial product innovations in supporting financially distressed firms and households in the UAE

Journal of Financial Services Marketing - Covid-19 has affected the global economy, influencing firm and household financial decisions worldwide. The Central Bank of the United Arab Emirates...     

The determinants of recovery from the Black Saturday bushfire: demographic factors,behavioural characteristics and financial literacy

We investigate the contribution of demographic factors, behavioural characteristics and financial literacy to recovery from the financial losses inflicted by the Black Saturday bushfire. Behavioural characteristics (such as overconfidence, self-serving and loss aversion biases) in conjunction with bushfire survivors’ knowledge of financial indicators are used to determine recovery time. Data are collected through in-depth interviews with bushfire survivors, academics and experts in natural disasters. The results show that demographic, behavioural and financial literacy factors have the potential to enhance the recovery process.     

The effects of environmental regulation on the stock market: the French experience

The impact of environmental regulation on the French stock market is investigated by using event study methodology and asset pricing models. The impact of environmental regulation on the stock prices of environmentally friendly businesses and polluters is assessed. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emissions Trading System and less so to the regulation on water, soil and air. The chemicals, oil and gas industries exhibit negative reactions, whereas other polluters (such as construction and materials, and industrial transportation) produce positive abnormal returns.     

Global terrorism and adaptive expectations in financial markets: Evidence from Japanese equity market

The adaptive expectations model posits that economic agents’ expectations adjust by constant proportion of previous discrepancy and the forecast for the following period is the same for all the subsequent future periods, if the expectation is a permanent. We apply this hypothesis and event study methodology to examine the impact of five terrorist attacks (New York World Trade Centre, Bali, Madrid, London, and Mumbai) on Japanese industries. Being a watershed event, the negative impact of the attacks in the U.S. was apparent. Our evidence suggests an initial step-change in risk incorporated into expectations after the U.S., Bali and Madrid bombings. The two subsequent attacks had no effect on the market implying no the forecast error in risk expectation in Japan after the initial terrorist attacks.     

The financial consequences of abolishing a carbon trading system

We investigate the impact of 61 announcements of environmental regulations on the equities listed on the Australian Stock Exchange over the period 2009–2015. In particular, our study focuses on how the stock market reacts to announcements of the abolishment of carbon trading/pricing system. Using event study methodology, we assess whether these announcements create or destroy wealth of equity investors. Furthermore, we estimate changes in systematic risk following the announcements. In general, we find that the abolishment of the carbon pricing system has a positive effect on 18 sectors and the process of removing the carbon pricing system appears to affect the systematic risk of businesses leading to diamond risk structures. We also document negative reactions of polluting sectors to the announcements of green policies.     

Effects of the Boxing Day tsunami on the world capital markets

The effects of the Boxing Day tsunami on the world equity markets are investigated in this paper. In particular, this paper examines how the risks and returns of industry and market portfolios are altered as a result of the tsunami. The analysis includes countries that were directly or indirectly exposed to this catastrophe. Both parametric and non-parametric tests are employed to explore the relationship between equity stock returns and the tsunami, and the CAPM is utilised to assess the variation in systematic risks. Given that the literature in this area is at its earliest stage, we draw on economic theories of flooding. In this way, our results are consistent with that of the flooding literature, which would predict that the Boxing Day tsunami would have minimal effects on the risks and returns of equity markets. This paper documents that the tsunami was associated with few abnormal return changes and a general increase in the long-term systematic risk of the equity portfolios in the study.     

How does the stock market react to the announcement of green policies?

We investigate the impact of 19 announcements of environmental regulation on the equities listed on the Australian Stock Exchange over the period 2005–2011. Using a well-established event study methodology, we assess whether these announcements are value constructive or destructive for equity investors. Additionally, we estimate the change in systematic risk following the announcements. Our results show that the Australian market was particularly sensitive to the carbon pollution reduction scheme (CPRS) announcement. A cumulative abnormal return of −31% was recorded in the alternative energy sector after Australia submitted its target range to the Copenhagen Accord. We observe that a move towards a greener nation has a mixed effect on abnormal returns with apparent sector-by-sector differences. Green policies appear to affect the long-term systematic risk of industries, leading to the diamond risk phenomenon.     

Firm survival through a crisis: The influence of market orientation,marketing innovation and business strategy

As an outcome of the economic crisis, the global manufacturing sector is collapsing. Focusing on Chinese manufacturing small and medium enterprises (SMEs), this study investigates whether marketing innovation, defined as improvements in the marketing mix, can assist in withstanding the challenges of operating under the current economic conditions. A conceptual model linking market orientation, marketing innovation, competitive advantage and firm survival is tested using structural equation modelling. Three key findings are derived. First, the examined Chinese manufacturing SMEs had a greater perceived likelihood of survival had they developed and sustained a competitive advantage. Second, marketing innovation assisted in developing and sustaining competitive advantages based on differentiation and cost leadership strategies. Third, marketing innovation capabilities improved when the examined manufacturing SMEs were competitor oriented and had good inter-functional capabilities.     

Higher educational services exports: sources of growth of Asian students in US and UK

The paper reviews the recent trends and current developments in the global higher education market with a particular focus on growth of Asian students studying in US and UK. Using pool cross section-time series data over the 1985–2003 period, it is found that different factors affect students from different countries differently. This suggests that the marketing strategies of offshore higher education providers need to be tailored to the specific needs of different markets in order to be successful. The emergence of a number of new players in the higher education export market is also rapidly becoming a major threat to the traditional higher education service exporters.