Analysis impact of firm-specific information on a company's stock returns - Essay Example

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Introduction The relationship between special information, event announcement, and stock return behavior is concerned with an increasing number of investors, portfolio managers, regulators and researchers. This report is directed towards helping to examine the InterContinental Hotels Group (IHG) stock price reaction with disclosure of company specific events…
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Analysis impact of firm-specific information on a companys stock returns
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Download file to see previous pages Accordingly, a brief literature review will be shown which helps to underscore and elaborate upon many of the specific theoretical interpretations of the methods utilized within this report. Additionally, a demonstration of development of event study is included and defined. Furthermore, the third part of the piece will include a methodology review. The explanations of approaches which have been utilized to conduct this report will be given as well as some assumptions and critical common factors that are associated with this methodology. Likewise, a research design and results section will comprise the fourth part of this analysis. Ultimately, the issues which will be explored will be analyzed based upon an event study method. This part will begin with defining the date of events and then choose the estimated period and test period. Following this, marker models will be chosen as the benchmark for abnormal returns. Similarly, a linear regression for the market will be chosen. At this time, ordinary least square assumptions will be necessary to estimate the stability. Based on the results of linear regression, the abnormal return will be calculated. Next, the Cumulative abnormal return, or CAR will be utilized as a means of indicating the effect of events. A T-tests by CAR will be presented to show the significant of these events. A final part will necessarily be the conclusion of this report. It will show the basic information of this report and summarize it according to the inference which has been drawn. Background information InterContinental Hotels Group (IHG) is global hotel group which operate nine hotel brands (which in turn comprise a total of 4,600 hotels in more than 100 countries and regions, more than 676,000 rooms). IHG was established in 1946 and is the world's largest and most widely distributed network of professionally managed hotels. IHG operates in three different ways. First, IHG operates as a franchisor, second as a management accessory, and thirdly it operates as a rental basis. In addition, the franchise has been recognized as an effective business philosophy by many leaders within the industry. This report chose four specific events to explore the relationship with the IHG stock price volatility for a period time. These four events are shown below: (1) 18th April 2012: IHG shows its support for small business owners, entrepreneurs and Road Warriors. (2) 7th August 2012: IHG reported interim results from the 30th June 2012 and announced $1bn return of capital. (3) 8th October 2012: IHG reported the results of general meeting about Special Dividend and Share Consolidation. (4) 12th November 2012: IHG announces new Vice President of Development in Europe. Literature review Efficient Markets Hypothesis(EMH) The Efficient Markets Hypothesis(EMH)arose in 1970 by Eugene Fama. "Efficient market hypothesis" was developed by Louis Bachelier (1900) who was from the perspective of the stochastic process. Bachelier studied the movement of Brownian motion, stock price changes, and recognized that the effectiveness of the market information, present events, and even the discounted value of the future events, are reflected in market prices. The efficient market theory is that the market price already contains all the available information. Based on the past information and ...Download file to see next pagesRead More
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