When is bad news for the market really bad news?

Mukwevho, Tshifhiwa (2003-12)

Thesis (MBA)--Stellenbosch University, 2003.

Some digitised pages may appear illegible due to the condition of the original hard copy

Thesis

ENGLISH ABSTRACT: Investors often question the extent to which the state of the market affects returns in investment finance, and seek answers as to whether the market response to bad and good news is dependent on the level of the market. If this is true, investors who have the ability to identify events can make substantial amounts of money by identifying the state of the market before investing. This would then be in violation of the efficient market hypothesis. This study used the Conrad, Cornell and Landsman (2002) model to investigate whether the share price's response to bad news in South Africa changes with the relative level of the market. Conrad, et al. (2002) found enough evidence that the market's response to bad news increases with the increase in relative level of the market. Bhana (1996) supported this notion when he reported that investors overreacted to companies that announced negative earnings. A sample analysis of this study produced regression equations with insignificant unexpected earnings coefficients. One of the notable factors was that, for some observations, the retained earnings moved in the opposite direction with the unexpected earnings shocks. Malan (1998) found similar market reaction when he investigated the overreaction theory using three indices from Johannesburg Stock Exchange and he reported that the market could not distinguish between bad and good news as the results for both bad and good news yield either positive or negative abnormal returns. After introducing additional variables to allow for these opposite movements, CHANGE, the regression equation produced significant regression coefficients. The results of the study were directly opposite to the findings of Conrad, et al. (2002) and those in other existing literature. These indicated that the market responds strongly to good news in both good and bad market states. The study concludes by suggesting further areas for future research.

AFRIKAANSE OPSOMMING: Beleggers bevraagteken dikwels die mate waarin die opbrengste in beleggingsfinansies deur marktoestande beïnvloed word, en wil weet of die markreaksie op slegte of goeie nuus van markvlakke afhang. Indien dit waar is, kan beleggers wat die vermoë het om vooraf gebeure te identifiseer, aansienlike hoeveelhede geld maak deur die toestand van die mark te bepaal voor hulle geld belê. Dit sal dan teenstrydig wees met die Doeltreffende markhipotese. Hierdie studie gebruik die Conrad, Cornell en Landsman-model (2002) om uit te vind of die aandeleprys se reaksie op slegte nuus in Suid-Afrika saam met die relatiewe vlak van die mark verander. Conrad, et al. (2002) het voldoende bewyse gevind dat die mark se reaksie op slegte nuus toeneem soos die relatiewe vlak van die mark toeneem. Bhana (1996) het hierdie gedagte ondersteun toe hy berig het dat beleggers oorreageer wanneer maatskappye negatiewe verdienste aankondig. 'n Steekproefontleding in hierdie studie het regressievergelykings met onbeduidende onverwagte verdienste-koëffisiënte gelewer. Een van die belangrikste faktore was dat die teruggehoue verdienste by sommige waarnemings in die teenoorgestelde rigting beweeg het met onverwagte verdienste-skokke. Malan (1998) het 'n soortgelyke markreaksie gevind toe hy die oorreaksie-teorie ondersoek het deur drie indekse van die Johannesburgse aandelebeurs te gebruik. Hy het berig dat die mark nie tussen slegte en goeie nuus kon onderskei nie omdat die resultate vir slegte sowel as goeie nuus positiewe of negatiewe abnormale opbrengste lewer. Nadat bykomende veranderlikes ingebring is om voorsiening vir hierdie teenoorgestelde bewegings te maak, het die regressievergelyking beduidende regressiekoëffisiënte opgelewer. Die resultate van hierdie studie staan lynreg teenoor die bevindinge van Conrad, et al. (2002) en dié van ander bestaande literatuur. Dit dui daarop dat die mark sterk reageer op goeie nuus in goeie sowel as swak marktoestande. Die studie word afgesluit met voorstelle vir verdere navorsing op hierdie gebied.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/53719
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