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Case Study
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International finance Event Study Analysis (Case Study Sample)

Instructions:

You are asked to construct seven distinct global stock indices from the same five country stock indices of your choice using different indicators to weigh, and analyze using an event study methodology whether the indices can be shown to have generated statistically significant positive or negative abnormal returns when compared with a generic global stock index.

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Content:

BUSFIN 1341 – International Finance

International finance Event Study Analysis

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Evaluating whether there are abnormal returns will focus on the differences between the MCSI world index and global indices provide insights into 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 aan nnouncement 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 to 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 sinc...

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