International finance Event Study Analysis

BUSFIN 1341 – International Finance International finance Event Study Analysis Name Institution Date  Evaluating whether there are abnormal returns will focus on the differences between the MCSI world index and global indices provide insights on this relationship. The global index has two developed and they're developing countries, namely, Ireland, Norway, Costa Rica, Nigeria and Ghana. The event in the project is the release of strong US GDP information at the end of March 2017 after President Trump had already identified his major policy initiatives and announcement on the economic performance were partly linked to improve ease of doing business. The event study methodology helps to determine whether the movement in share values and stock market values is dependent on events prior and after the announcement of the event. While Costa Rica is a developing nation, the county’s GDP per capita and standard of living are better than those of the less and least developed countries, which are mostly in Africa, as it is a transit country. Northern Ireland uses the British Sterling pound, while Northern Ireland uses the euro as it is still part of Europe. The event study methodology is used to evaluate whether there are statistically significant positive or negative abnormal returns when compared with a generic global stock index. While the global index contains five countries, it includes countries in different economic zones, locations and using different currencies. As such, there are differences in the way the stock markets in these countries respond to available information (Lakshmi & Joshi, 2016, 2016). The released economic information indicated that consumer spending the largest component of aggregate demand and corporate profits had exceeded expectations. As such, the market reacted to the strong growth days and this reflected the positive investor sentiment, when this was bolstered by expectations that there would be further cuts in corporate and personal taxes. The Dow Jones and S&P 500 rose and the event was unexpected, even as there were concerns that the Fed would raise the benchmark rates. At the same time, President Trump’s willingness to undertake protectionist policies to further improve American competitiveness has a direct bearing on the fall in bond values and weakening currency exchange rate in countries like Mexico. The case for using the event study methodology is that the periods are broken down into days after the GDP level announcement covering year and two years prior to the announcement. The assumption made in using the approach is that is possible to determine whether there is a direct relation between the market reactions and the event in the domestic and international financial markets (Chatjuthamard et al., 2017). It was also assumed that the markets are efficient, and when the value relevance of the announcement is considered, it is possible to estimate the impact on stock returns and this includes the abnormal returns Economic policies and announcements have a more profound impact on the financial markets than news on corporate earnings, dividends, stock splits, mergers and acquisitions which mainly affected corporations and at time industries. At the same time, when there are abnormal positive or negative returns this reflects the likelihood of market inefficiencies (Elad & Bongbee, 2016, 2016). Data on daily returns for more than five years have been identified, the weekly returns will be used for the five year period March 2015 to March 2018. Weekly returns data are more precise compared to monthly return wheel evaluating where there are abnormal returns The null hypothesis is that there are no abnormal returns as they are zero, where the event does not influence the returns and since those returns reflect the unexpected changes in the values of the financial securities and indices since the market returns are conditional on the event. For the security holders, changes in wealth depend on the values of the underlying securities, and while it is expected that other benchmarks were also boosted by better GDP returns in the U.S. The reactions differed depending on how countries with the U.S and expectations about international trade. The initial reactions are positive, and even when the magnitude of positive sentiments decreases over time or other events change perceptions about the country’s economic direction, the changes in the value of stocks reflect prevailing sentiments based on expectations and information available. Additionally, reaction to the announcement of GDP numbers occurred at a time when there was positive consumer and investor confidence. In other words, the impact of the business cycle on how the markets reacted also offers into how this is linked with abnormal returns. When analyzing the likelihood of there being abnormal returns, it is necessary to consider where the null hypothesis is accepted that there are zero abnormal returns (Elad & Bongbee, 2016). If there is a rejection of that there are no abnormal returns when this is true, then this is a Type I error (Lakshmi & Joshi, 2016). Typically, there has been an upward value rise in the indices except for economic shocks like the global financial crisis and rec...