Subtle is the Lord,but malicious He is not: the calculation of abnormal stock returns in applied research

We use the expected logarithmic returns formula for the Geometric Brownian Motion (GBM) in conjunction with the expected logarithmic returns formula for the Feller diffusion to illustrate the nature and magnitude of errors which arise in computed abnormal returns when one applies an expected logarithmic returns formula which is incompatible with the stochastic process that generates a stock’s returns. Empirical analysis based on FTSE 100 stock price data for the five year period ending in 2017 shows that the scale of the errors in computed abnormal returns will hinge on the volatility of the returns generating process but will be particularly pronounced for relatively low stock prices. Although our principal focus is with comparing abnormal returns on the GBM and Feller diffusion, we also simulate logarithmic returns for the Uhlenbeck and Ornstein (1930) process, several interpretations of the Constant Elasticity of Variance (CEV) process and the scaled ‘t’ process of Praetz (1972) and Blattberg and Gonedes (1974). Taken in conjunction with the GBM and the Feller diffusion, these processes underpin virtually every equilibrium based asset pricing model which appears in the literature. However, computing abnormal returns for any of these processes using the expected logarithmic returns formula for the GBM inevitably leads to errors in the abnormal returns. Hence, an important principle which emerges from our analysis is that it is crucially important for researchers and others to test the compatibility of empirically observed returns with the distributional assumptions on which the empirical analysis is based if the complications arising from mis-specified modelling procedures are to be avoided.     

Explaining abnormal returns in stock markets: An alpha-neutral version of the CAPM

This paper develops a behavioural asset pricing model in which traders are not fully rational as is commonly assumed in the literature. The model derived is underpinned by the notion that agents’ preferences are affected by their degree of optimism or pessimism regarding future market states. It is characterized by a representation consistent with the Capital Asset Pricing Model, augmented by a behavioural bias that yields a simple and intuitive economic explanation of the abnormal returns typically left unexplained by benchmark models. The results we provide show how the factor introduced is able to absorb the “abnormal” returns that are not captured by the traditional CAPM, thereby reducing the pricing errors in the asset pricing model to statistical insignificance.     

Failing Faithful Representations of Financial Statements: Issues in Reporting Financial Instruments

Both the International Financial Reporting Standards (IFRS) and the codified accounting standards (ASC) for the US GAAP categorize hedging relationships as falling into several buckets. The two buckets of relevance in this paper are (i) hedging the volatility of fair values, and (ii) hedging the volatility of future cash flow. In this paper, I argue that at least three accounting treatments of derivatives and hedging lead to creating serious distortion of reporting actual transactions, to combining hard and plastic valuations, and to violating adherence to the principle of ‘faithful representation’. The three accounting treatments are as follows: (1) creating the fictional Hypothetical Derivatives Method; (2) allowing for the establishment of purely discretionary valuation adjustments for all over-the-counter derivative assets (Credit Valuation Adjustment) and liabilities (Debt Valuation Adjustment) without any guides or constraints; (3) requiring subjective metaphysical separation of embedded derivatives with the main guide being the management's own perception of the instrument's embodiment of unrelated value and risk generators. To remedy the resulting distortion in financial reporting, significant revisions of certain accounting standards are sorely needed.     

Abnormal investment and firm performance

We find a negative relation between abnormal investment and future stock performance. Such a negative relation is mainly driven by under-investment, not over-investment. Our results are robust to various estimation methods and investment models. Both delayed market reaction and agency issues may lead to the apparently anomalous return predictability of under-investment. First, market investors may not react promptly to the fundamental information contained in under-investment about a firm’s future profitability, asset growth, and financial distress probability. Second, the negative relation between under-investment and future stock returns is more pronounced for firms with lower investor monitoring and higher agency costs.     

State ownership and abnormal accruals in highly-valued firms: Evidence from China

We examine how state ownership affects Chinese firms’ abnormal accruals during a period of high valuation. We find the magnitude of abnormal accruals first increases for up to three years of high valuation, and then reduces after the fourth year. We also find that managers turn to using abnormal real transactions after four consecutive years of high valuation. Next, we examine whether the degree of abnormal accruals in highly-valued firms differs between state-owned enterprises (SOEs) and non-NSOEs. Supporting the view that SOE managers have less incentive to sustain high stock prices, we find evidence that highly-valued SOEs have significantly lower levels of abnormal accruals than highly-valued NSOEs during the period of high valuation. Our findings contribute to the literature on the cross-sectional variation in the relation between managers’ pressure to sustain high stock prices and their accounting choices in firms with different ownership structures.     

Merger abnormal returns and payment methods of hospitality firms

The study aims to examine the long-term abnormal returns to hospitality acquirers as well as the association between excess returns with financing methods and size. The study applies regression analysis with secondary data examining 19 hospitality acquirers from 1996 to 2007. Using hospitality sector specific indices, the study shows that hospitality acquirers receive positive abnormal returns 12 months post-merger and that there is negative association between cash payment and acquirers’ excess returns.     

Are sports sponsorship announcements good news for shareholders? A meta-analysis

The number of studies on the marketing–finance interface has escalated in response to increased interest in the value of marketing investments, such as sports sponsorship. This study integrates current research findings and establishes empirical generalizations on how sports sponsorship announcements impact firm value. The empirical literature finds contradicting results on the value shareholders place on these marketing investments. This paper addresses this issue by undertaking a meta-analysis on stock reactions to sport sponsorship announcements, using 3192 of these announcements taken from 36 studies (41 samples). On aggregate, these announcements drew the attention of shareholders since there was a positive and significant cumulative abnormal return (CAR). However, this positive effect was mostly observed in the 1990s and became negative in the 2000s. Overall, shareholders viewed sports sponsorship investments favorably when there was a functional and geographical congruence between sponsors and sponsees. This paper also shows that the differences in the CAR can be explained by controlling for confounding events and host country. The paper concludes by providing potential avenues for further research in sports sponsorship, using the event study method.     

福达煤矿回采工作面瓦斯异常涌出规律研究

通过研究地表大气压力的变化与工作面瓦斯异常涌出的关系,发现了福达煤矿在春季多次出现工作面瓦斯异常涌出的主要原因,并得出大气压力的变化与瓦斯涌出呈负相关的关系,瓦斯浓度增加量(增加速度)和大气压力的下降速度基本上呈正比例关系,而与大气压力下降的具体数值的关联并不是很明显。通过该项研究可以对福达煤矿在大气压力变化异常的春冬两季回采工作面瓦斯防治工作具有指导性意义。     

上市公司“股权分置”改革的市场效应研究——来自沪深股市的经验数据

本文采用市场收益模型和三因素模型,研究我国上市公司股权分置改革所产生的市场效应,分析了股权分置改革前后所产生的累积非正常收益和影响因素。研究表明,股权分置改革改前后累积非正常收益呈先上升后下降趋势,在所研究的事件期间市场风险对累积非正常收益具有最为显著的影响,股权分置改革后流通股比例对累积非正常收益有一定的影响,而对价支付比例对累积非正常收益没有显著影响。     

不利意见、审计费用与意见购买

本文进一步区分上年度不利审计意见的具体类型、审计费用的升降以及审计意见的改善与恶化。研究证实:(1)上年度被出具不利审计意见虽然可能增加本年度收到不利审计意见的可能性,但是亦可能提高审计意见改善的可能性,并和审计意见出现恶化的可能性显著负相关。(2)如果上年度被出具不利审计意见,则异常审计费用与审计意见改善的可能性显著正相关。(3)审计费用的增加能显著降低被出具不利审计意见的可能性,并可有效防止年报审计意见出现恶化。可见,公司管理层可以通过提高审计费用成功地实现审计意见购买动机,在一定程度上规避不利审计意见。