Lecture 7 Flashcards
(19 cards)
What are three different financial performance measures?
Sales, Purchase Intention, Stock Price Data
These measures provide insights into different aspects of a company’s performance.
Where is the sales data coming from?
The data is coming from retail UPC scanners or from the company itself
UPC scanners are used to track sales at the point of purchase.
Where is the purchase intention data coming from?
It is coming from the market research companies that track the perception of firms and brands
Market research companies use surveys and studies to gauge consumer sentiment.
What does the purchase intention data indicate?
It indicates how strong a brand is in the hearts and minds of consumers
This measure reflects consumer sentiment rather than actual sales.
What is the limitation of the purchase intention data?
The limitation is that it doesn’t measure the actual purchasing behavior of the consumers
Purchase intention can be high, but it does not guarantee actual purchases.
What does the stock price data reflect?
It reflects investors’ perception of its ability to earn and grow its profit in the future
Stock prices are influenced by various factors, including market sentiment and company performance.
What is the first step in interpreting a single-firm stock price reaction to an event?
Calculate the expected return as if no event occurred
This involves analyzing historical data to forecast what the return would have been without the event.
What is the second step in interpreting a single-firm stock price reaction to an event?
Calculate the difference between actual return and expected return
This difference helps to assess the impact of the event on the stock price.
What are some typical events used in an event study?
- New product introduction
- Alliance formation
- Channel restructuring
- New market entry
- Emergency acquisitions
- Hostile takeover
- Outsourcing
- Conversion of non-voting shares into voting shares
- Introduction of an option plan for compensation
These events are analyzed to determine their impact on stock prices.
What does the Efficient Market Hypothesis state?
Assets price at any given time fully reflects all available information
This implies that it is not possible to continuously outperform the market.
True or False: The Efficient Market Hypothesis suggests that investors can consistently achieve higher returns than the market average.
False
According to the hypothesis, prices reflect all available information, making it difficult to achieve consistent outperformance.
Fill in the blank: The difference between actual return and expected return is calculated to assess the _______ of the event.
[impact]
This assessment is crucial for understanding how significant the event was for the stock price.
What are the three premises of the efficient markets?
- A large number of market participants analyze and value stocks independently, preventing any single investor from dominating prices.
- News arrives at random times, making it impossible to predict when significant updates will affect the market.
- Investors trade on new information immediately, adjusting prices to their corrected levels.
These premises highlight the fundamental characteristics of efficient markets.
What are the five steps of the Event Study Design?
Event Definition and Sampling, Treatment of Confounding Effects, Selection of an Appropriate Model, Test for Significance and Their Power, Moderating Analysis
These steps outline the comprehensive approach to conducting an event study.
What is done in the selection of an appropriate model step of designing an event study?
It is determined which model and time window should be used to estimate abnormal returns
This step is crucial for accurately assessing the impact of the event.
What is done in the fourth step of the event study design, test for significance and their power?
It is determined what are the appropriate test statistics that can be used to determine whether the stock reaction to the event is significantly different from zero
This involves statistical analysis to validate the findings.
What is done in the fifth step of the event study design, the moderating analysis?
It is determined how to investigate drivers of stock market reactions
This helps in understanding the factors influencing market behavior.
When is the moderation analysis possible?
The moderation analysis is only possible if we have several observations
