Stock price reaction to profit warnings: the role of time varying betas

Yin, Shuxing, Mazouz, Khelifa ORCID: https://orcid.org/0000-0001-6711-1715, Benamraoui, Abdelhafid and Saadouni, Brahim 2018. Stock price reaction to profit warnings: the role of time varying betas. Review of Quantitative Finance and Accounting 50 (1) , pp. 67-93. 10.1007/s11156-017-0623-3

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Abstract

This study investigates the role of time-varying betas, event-induced variance and conditional heteroskedasticity in the estimation of abnormal returns around important news announcements. Our analysis is based on the stock price reaction to profit warnings issued by a sample of firms listed on the Hong Kong Stock Exchange. The standard event study methodology indicates the presence of price reversal patterns following both positive and negative warnings. However, incorporating time-varying betas, event-induced variance and conditional heteroskedasticity in the modelling process results in post-negative-warning price patterns that are consistent with the predictions of the efficient market hypothesis. These adjustments also cause the statistical significance of some post-positive-warning cumulative abnormal returns to disappear and their magnitude to drop to an extent that minor transaction costs would eliminate the profitability of the contrarian strategy.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce
Publisher:	Springer Verlag
ISSN:	0924-865X
Date of First Compliant Deposit:	14 February 2017
Date of Acceptance:	6 February 2017
Last Modified:	08 Nov 2023 02:11
URI:	https://orca.cardiff.ac.uk/id/eprint/98308

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