Stock Returns Following Large Price Changes and News Releases - Evidence from Germany

Stock Returns Following Large Price Changes and News Releases - Evidence from Germany
Author: Rainer Baule
Publisher:
Total Pages: 32
Release: 2017
Genre:
ISBN:

We revisit the overreaction hypothesis in the light of information effects. Using a sample period from 2005-2012 covering 2,542 large price changes in the German stock market, our results indicate that information effects can explain both overreaction and underreaction patterns. Specifically, we find that large positive price changes without public information signals are followed by short-term price reversals. In contrast, negative price shocks concurrent with a public announcement are associated by price continuations. The results are robust to size effects and sub-periods. Furthermore, we design a trading strategy to show that the observed return predictability could have been exploited for large negative price changes.

The Predictabilty of German Stock Returns

The Predictabilty of German Stock Returns
Author: Judith Klähn
Publisher: Deutscher Universitätsverlag
Total Pages: 0
Release: 2000-06-28
Genre: Business & Economics
ISBN: 9783824471027

Ten years ago, most textbooks on financial management advocated the thesis that stock returns are essentially unpredictable. This theory is called the Random Walk Approach to the development of asset prices. The approach said that the stock market is subject to random changes, which are, by definition, unpredictable. Apparent predictabilities, if ever discovered, were either dismissed as statistical artifacts or as data that cannot be exploited after transaction costs. In the meantime, the world of financial economics has turned upside down. We now realize clearly that returns are indeed predictable to a large extent. Recent studies have confirmed that U.S. stock returns are highly predictable. In this new research context, Judith Klahn posed the question whether German stock returns follow the same pattern. The predictability of German stock returns is the topic of her thesis. She is in a position to identify the relevant variables in the German context. Her basic result is that the driving forces of the German stock market and the U.S. stock market differ in most aspects. According to the Handelsblatt, Judith Klahn's statement is: "Deutscher Aktienmarkt ist kaum mit der Wall Street vergleichbar" (No. 120, June 25, 1999, p. 47).

Impact of Analyst Recommendations on Stock Returns

Impact of Analyst Recommendations on Stock Returns
Author: Michael Souček
Publisher:
Total Pages:
Release: 2014
Genre:
ISBN:

The purpose of this article is to examine the impact of analysts' recommendation downgrades, upgrades, and reiterations on German stock returns and as to whether prof- itable investment strategies could potentially be designed around these recommendations. The paper provides a unique detailed descriptive analysis of financial analysts' recommendations changes on German stock market over the last decade. First, we show that changes in recommendations yield significant positive (negative) abnormal gross returns for upgrades (downgrades), respectively. Reiterations, on the other hand, do not cause statistically significant stock market reactions. We show, that stock price reactions following recommendation revisions are strongest at the announcement day and last up to six months for upgrades and four month for downgrades. A bulk of market reactions, appears on the recommendation event date and shortly before so that investors must trade in a timely manner to profit from analyst recommendations. A one-day delayed reaction to the change in recommendations do not allow for significant abnormal returns for most of the recommendation shifts.

Macroeconomic News Effects in Commodity Futures and German Stock and Bond Futures Markets

Macroeconomic News Effects in Commodity Futures and German Stock and Bond Futures Markets
Author: He Huang
Publisher: BoD – Books on Demand
Total Pages: 222
Release: 2010
Genre: Business & Economics
ISBN: 3899368924

A well-known concept in modern capital market theory is that only systematic risk factors affect security prices. Macroeconomic announcements are among the most important news for financial markets because the state of the economy is a prime candidate for such a source of non-diversifiable risk. This book investigates the effects of US macroeconomic news on three financial markets that have received less attention in the literature so far. The markets of interest are the commodity futures market, the German stock index futures market, and the German bond futures market. I investigate not only price effects, but also liquidity effects as well as the channels of cross-border information flow. I find that commodity markets as well as international stock and bond markets are likewise affected by the release of US macroeconomic news. The strength of the commodity price response depends on the state of the economy and news about the US economy is more important for German stock markets than domestic economic news. For an investor in any of these markets, this book provides valuable information on how to adjust his trading strategies around the release of macroeconomic news. Moreover, my findings contribute to the understanding of cross-border information flow. First, I find that both domestic and foreign economic news induce significant price and liquidity effects. Second, I find that there are two important channels of information transmission for foreign news: the direct response to the news and the indirect response to the foreign response to the news.

Large Price Changes and Subsequent Returns

Large Price Changes and Subsequent Returns
Author: Suresh Govindaraj
Publisher:
Total Pages:
Release: 2014
Genre:
ISBN:

We investigate whether large stock price changes are associated with short-term reversals or momentum, conditional on the issuance of analyst price target or earnings forecast revisions immediately following these price changes. Our study provides evidence that prices of stocks exhibit momentum when analysts issue revisions after large price shocks, and suggests that the initial price changes were indeed based on new information. In contrast, when price changes are not followed by immediate analyst revisions, we document short-term reversals, indicating that the initial price shocks were likely caused by liquidity or noise traders. A trading strategy that is based on the direction of the price change and the existence of analyst revisions in the same direction earns significant abnormal monthly returns (over 1%).

The Handbook of Equity Market Anomalies

The Handbook of Equity Market Anomalies
Author: Leonard Zacks
Publisher: John Wiley & Sons
Total Pages: 352
Release: 2011-08-24
Genre: Business & Economics
ISBN: 1118127765

Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.

Stock Price Effects Associated with Index Replacements in Germany

Stock Price Effects Associated with Index Replacements in Germany
Author: Claus Deininger
Publisher:
Total Pages: 27
Release: 2001
Genre:
ISBN:

The presented paper addresses the question whether there is a stock price reaction to index replacements on the German stock market. Although it is well known from the empirical literature, which is predominantly related to the US stock market, that an index replacement has a strong impact on stock prices, it is still an open question, whether this stock price adjustment is only transitory or persistent.In order to shed new light on this issue, this paper analysed inclusions into and deletions from the two most important German stock indexes, namely the blue-chip index DAX and the mid-cap index MDAX. Unfortunately, also our evidence seems to be rather mixed with respect to the above mentioned hypotheses. We found a strong abnormal price impact on the day of the announcement of the index replacement. Stocks included in the index rose by 1.72 percent on the announcement date, while stocks deleted form the index fall by 1.19 percent on that day and by a further significant 8.76 percent up to the replacement day. Both reactions were statistically significant and they seem to be persistent, as we found no indication for a reversion in the stock price movement during the following weeks. This evidence does not fit into the price pressure hypothesis. The same is true for our finding that although absolute price reactions on the announcement date are very similar for both type of index replacements abnormal trading volume reactions are larger and more significant for index inclusions. We also found some evidence against the liquidity hypothesis. Especially, an index replacement seems not to have an impact on stock price volatility and price reactions on the announcement date are not correlated with long run volume reactions. Therefore, our evidence may support the imperfect substitute hypothesis, although we found a weakly significant correlation of price and volume reactions on the announcement date only for inclusions. Of course, the economically interesting question remains why investors and fund managers are willing to pay a premium for stocks included in an index.