International Finance Event Study Analysis

BUSFIN 1341 – International Finance International finance Event Study Analysis Name Mehmet F. Yalin Institution Date The two developed countries chosen were Australia and Canada, while the developing countries were Ghana, Jamaica and Sri Lanka. The Canadian economy is closely intertwined with that of the U.S. As America is Canada’s biggest export market and changes in American economy may influence investor sentiments and economic outlook in Canada. The value of stocks depends on demand and supply where higher demand is associated with rising value, while massive selloffs result in the value of stocks declining. Similarly, the value of stock indices depends on demand and supply. Event studies are statistical methods that help to assess the relationship between the security prices or indices and economic events (OkoЕ„, 2012). The uncleaned data ranges from January 27, 2015 to January 31, 2017 and from then on January 30, 2018. It is assumed that prices reflect available information, but in some cases information does surprise investors. At the same time, there are instances where their reaction are delayed and there is an opportunity to get above average returns. Capital markets receive a lot of information in each trading day, and there is information that affects the value of specific stocks or industry including economic news, financial results, mergers and acquisitions and changes in a company’s board of management. Policies and political issues also affect the industries and the market participants take this into consideration when making decisions. Furthermore, information is not always connected to one company based on what is available, their projections and sentiments about the future direction of a company, industry and indices. As such, analyzing the impact of the market value based on market activities and environment provides insights on whether there are abnormal returns. Since the market participants mostly the investors react to market news and events especially about changes in dividend policy, new sharers issued, announcement of share split, repurchase of shares and analyst recommendation, the events methodology is useful in evaluating such events (OkoЕ„, 2012). Event studies are useful as they highlight the magnitude of performance when specific events take place for both the anticipated and unanticipated events (Ong, Lim & Wong, 2016). While most studies have focused on stock market movements in the major economies, the stock markets in the developing countries are also linked to the international financial and money markets. In any case, fluctuations in the stock values and indices also depend on the unanticipated events. The first quarter reported earnings for Apple, Inc occur at the end of January and the beginning of February. Analyzing the changes in global index and world index in the three year period 2015 to 2018 provides insights on whether there are abnormal returns. The iPhone 7 Plus was unveiled in 2016/2017 and this is one announcement that affected the U.S. Market as Apple, Inc has grown in the last decade to be one of the most recognized brands in the world. Since investor expectations influence the market values evaluating abnormal returns using the event methodology is effective. Hence, the analysis will highlight the link between events, and stock market indices in the developed and developing nations. The economic and financial events in the U.S. have a profound impact on other markets. There are abnormal returns between the generic global stock index (world index) and the world and the computed the global index. The magnitude of the abnormal returns is indicated by the forecast error of the return generating model and the forecasting measures. Since the abnormal returns are the extra returns during the monitored event, it is necessary to identify an event that is also isolating and monitoring its impact on returns (ObradoviД‡ & TomiД‡, 2017). Ideally, one should not choose a period where significant events are likely that have had a significant impact on securities return (ObradoviД‡ & TomiД‡, 2017). After the 2007-2009 financial crisis, there was no other major economic shock to the global economies, but oil prices have fallen, and none of the five counties, whose financial markets were used to create the global index, is oil dependent. The impact of the event not only extends to the US stock markets, but other countries, because of the financial, capital and money market linkages. The U.S. dollar is the major currency of international trade and even oil is pegged on the U.S. dollar. As such, events that affect the financial markets in the U.S. have a more profound impact on investor sentiments in neighboring countries. The effect of the announcement on the stock markets may differ from that of the bond markets, as the latter are mainly influenced by economic outlook and economic announcement, but in the stock market there are huge differences between market segments and individual stocks. This is especially when the stocks are volatile as this increases the risk. Even when there is hedging to reduce the risk of losses, investors are more exposed in the stock markets. The market reactions to announcements depend on expectations, timing and sentiments about how such announcements are likely to affect the markets. In the event window, then first few days after the announcement the reaction is immediate and the value of the markets improved based on positive ...