An alternative way to invest on the stock market is to invest in IPO’s. An IPO (InitialPublic Offering) is the first time a company goes public on a stock market, giving outshares to private investors and financial institutions. However, there might be someuncertainties about the share price as it never has been traded on the stock exchangebefore and it could therefore be difficult to determine a reasonable value for the shareprice. Consequently, if the offering price for the investor is significantly lower thanthe “correct valued” price it will generate positive initial return during the first tradingday and this phenomenon is labelled as underpricing, generating more “money on thetable”. Still, previous researches display an underperformance among IPO’s during alonger period after the introduction compared to already established companies withinthe same sector, arguing that investors should sell their shares early after the firsttrading day.The objective of this study is therefore to determine if underpricing exists for IPO’son the Swedish stock exchange and if there are any differentiations amongst sectors,and also to investigate two different Buy-and-Hold strategies. A final objective for thestudy is to determine if the level of underpricing is affected by some explanatoryvariables.With a quantitative study and a longitudinal approach, the results confirm the effect ofunderpricing for IPO’s on the Swedish stock exchange, generating an averageunderpricing of 5.56%. Additionally, this study cannot display any different medianunderpricing between industry sectors. However, it contradicts with theunderperformance phenomenon, indicating an overperformance for longer Buy-and-Hold strategies. Lastly, a regression of explanatory variables trying to explain thelevel of underpricing demonstrates no statistically significant results.

Finance scholars disagree on how real world financial markets work. On the one hand, efficient market hypothesis (EMH) advocates claim that arbitrage ensures that market prices do not systematically deviate from their fundamental value even when some market participants are less than fully rational. Hence, in the EMH world, securities’ prices always reflect all available information. On the other hand, behavioural finance theorists argue that investors suffer important cognitive biases and that arbitrage is both risky and costly. In this alternative setting, prices may not reflect all available information and can systematically deviate from their fundamental value for long periods of time. My thesis contributes to this ongoing debate by exploring how the US equity market reacts to bankruptcy announcements. Using a set of 351 non-financial, non-utility firms filing for Chapter 11 between 1979 and 2005 that remain listed on a main exchange, I first find a strong, negative and statistically significant mean post-bankruptcy announcement drift. This ranges from -24 to -44 percent over the following 12 months depending on the benchmark adopted to measure abnormal returns. A number of robustness tests confirm that this result is not a mere statistical artefact. In fact, the post-bankruptcy drift is not subsumed by known confounding factors like the post-earnings announcement drift, the post-first-time going concern drift, the momentum effect, the book-to-market effect, industry clustering or the level of financial distress. In addition, I show that my main result is robust to different methods for conducting longer-term event studies. My empirical findings are consistent with the previous behavioural finance literature that claims that the market is unable to deal appropriately with acute bad news events. In the second part of this thesis, I investigate how limits to arbitrage impact the stock price of firms undergoing a Chapter 11 reorganization. I find that, despite the apparent large negative abnormal returns, the post-bankruptcy announcement drift offers only an illusory profit opportunity. Moreover, I show that noise trader risk is critical for the pricing of these firms’ stock. Taken together, my results suggest that limits to arbitrage issues can explain the persistence of the market-pricing anomaly I uncover. As such, the market for firms in Chapter 11 appears to be “minimally rational” (Rubinstein, 2001). My work additionally explores whether behavioural finance theory can help clarify why the post-bankruptcy announcement drift occurs in the first place. I find that the Barberis, Shleifer and Vishny (1998) and the Hong and Stein (1999) models do not account well for the typical return pattern associated with the announcement of Chapter 11. My results call into question the reliability of existing theoretical models based on behavioural concepts in explaining how real world financial markets really work. In the last part of this thesis, I show that the different motivations for filing for Chapter 11 Court protection affect the market’s reaction to this extreme event. Solvent firms addressing the Bankruptcy Court not as a last resort but as a planned business strategy characterize a strategic bankruptcy; companies on the verge of imminent failure typify a non-strategic bankruptcy. I find that for non-strategic bankruptcies, there is a negative and statistically significant post-event drift lasting at least twelve months. Conversely, I show that, although the initial market reaction to bankruptcy filing is similar in the case of strategic bankruptcies in terms of viewing all bankruptcies as homogeneous, there is a subsequent reversal in the stock return pattern for these peculiar firms. In effect, abnormal returns become strongly positive and significant suggesting that, over time, the market to recognise strategic bankruptcies as good news events. Overall, the results of my PhD allow me to make some important contributions to finance theory and the finance literature, in particular in the bad news disclosure and market pricing domains.

Background A common goal for many investors is to beat the market. However, only a few are able to do so consistently over a long time. The random walk theory and the efficient market hypothesis are two widely accepted theories that state that it should not be possible to consistently generate abnormal returns in an efficient market. There are though some contradicting results that argue against market efficiency and a lot of those studies have value investment in common. Joseph Piotroski was in 2000 able to generate a value investment model that consistently beat the market between the years 1976-1996. Purpose The purpose of this paper is to test Piotroski’s model on stock markets with different size and maturity to evaluate if the model, as an investment strategy, can generate a better risk adjusted rate of return than a comparable market index. Unlike recent studies done on Piotroski’s value investing model, we will add a number of additional comparison portfolios and use two different valuation models to determine the source of return variation. Method This thesis employed a quantitative research method with a deductive approach. With data from four markets with different characteristics regarding efficiency and development, we performed an ex-ante test from 1995 to 2009. By employing Piotroski’s model, each stock on the four markets was given a score from 0-9; a portfolio for each market was created by the stocks that received a score of 8-9. They were then compared with portfolios from the same market based on the small firm- and book-to-market anomaly. We also performed a test between the markets to see if Piotroski’s model worked better in low efficiency or developed countries. All portfolios in this thesis were risk-adjusted with two different models, CAPM and the Fama & French three-factor model. Since these models use various factors to risk-adjust we have tested if they generate a different valuation of the same portfolio. Results Our study has shown that Piotroski’s model is not able to generate significant abnormal returns compared to our portfolios based on anomalies, our results also give an indication that by removing the anomaly premium the model might be destroying value instead of creating it. An explanation to why the model works in Piotroski’s study and not in ours could be the different method of risk adjustment. Piotroski uses a simple method by deducting the market return while we use two models that are taking additional factors into account. Our results are also able to show that choice of the valuation model does have a significant effect on the risk-adjusted return and could therefore affect the end-results of a study. Last of all our results do not give any support for the hypothesis that Piotroski’s model works better in countries with low efficiency compared to high efficiency or in countries that are developed compared to emerging.

Much has been written, by academics, about the impact sponsorship announcements have on the share price performance of sponsoring firms. The objective of this study was to investigate if this phenomenon was true for JSE listed companies with particular focus on three announcement categories i.e. (i) new, (ii) renew and (iii) termination. The Efficient Market Hypothesis as an aspect of Investment Finance behaviour was explored to understand why sponsorship announcements would or would not have an impact on the share price performance. For this study, descriptive research was done with a causal design as the study tested the relationship between two or more variables. The study analysed 118 sponsorship announcements made by 19 JSE listed companies over a period of eleven years and five months. The study then assessed the share price performance for the period 120 days prior to and 120 days after the announcement date. The share price holding periods were adjusted for that of the average Financial Services (J212) Index, the Industrial (J212) Index and the Resources (J258) Index respectively to ascertain whether the returns were abnormal or not. The results have shown that there were no evidence that the announcement of a (i) new, (ii) renewed or (iii) terminated sponsorship do have a significant impact on the performance of share prices for JSE listed companies. / Dissertation (MBA)--University of Pretoria, 2012. / Gordon Institute of Business Science (GIBS) / unrestricted

The efficient market hypothesis and behavioural finance have been the cause of much debate for decades, with one theory advocating market efficiency and the other opposing it. The efficient market hypothesis (EMH) assumes that investors always act rationally and stock prices adjust rapidly to new information and should reflect all available information. In contrast, behavioural finance suggests that markets are not rational and investors make irrational decisions, which may lead them to over- or under-price stocks. Researchers for years have been empirically testing these assumptions in stock markets. However, there has been no consensus on which asset-pricing models perform better in capturing the effect of market anomalies and what impact these market anomalies have on the expected returns of different stock market’s sectors. The aim of the study was to test the effect of selected market anomalies on expected return in different sectors of the Johannesburg Stock Exchange (JSE). More specifically, the study aimed to compare the performance of different asset-pricing models and their ability to account for market anomalies in different sectors of the JSE. Additionally, this study tested the applicability of the recent Fama and French five (FF5-factor) model, in estimating the expected return on the JSE. The study used a quantitative approach with secondary data over a period of 12 years starting from January 2002 to December 2014. The sample used in the study consists of monthly data obtained from McGregor BFA and the South African Reserve Bank. The study examined for the effects of size, value, January and momentum variables across six sectors of the JSE. This was accomplished by the use of various asset-pricing models such as the Capital asset pricing model (CAPM), the Fama and French three-factor model (FF3-factor), the Carhart four-factor model (C4F) and the recent five-factor model of Fama and French (FF5-factor). The study showed that whenever the asset-pricing models were not restricted, they tend to capture the market anomalies in four out of the six sectors examined. However, no market anomalies were found present in two of the six sectors analysed. In contrast, when the asset-pricing models are restricted, the asset-pricing models only seem to capture the effects of market anomalies in one of the six examined sectors. The findings in this study suggest that market anomalies are sensitive to model specifications, as restricting the models tends to capture the different market anomalies across the sectors of the JSE. The study also found that market anomalies differ across sectors and that some sectors are more efficient than others. The study also reveals that the FF5-factor model is able to account for expected returns on the JSE. In addition, the FF5-factor model tends to perform better when the model is restricted. It is also evident from the findings presented in this study, that the value anomaly loses its predictive power when profitability and investment variables are included in the model. Overall, the study illustrated that market anomalies have an effect on returns of the JSE, that the model specifications play an important role in an asset-pricing model and that the FF5-factor model is applicable on the JSE, however, it is not certain whether four or five factors apply to the South African market.

The efficient market hypothesis and behavioural finance have been the cause of much debate for decades, with one theory advocating market efficiency and the other opposing it. The efficient market hypothesis (EMH) assumes that investors always act rationally and stock prices adjust rapidly to new information and should reflect all available information. In contrast, behavioural finance suggests that markets are not rational and investors make irrational decisions, which may lead them to over- or under-price stocks. Researchers for years have been empirically testing these assumptions in stock markets. However, there has been no consensus on which asset-pricing models perform better in capturing the effect of market anomalies and what impact these market anomalies have on the expected returns of different stock market’s sectors. The aim of the study was to test the effect of selected market anomalies on expected return in different sectors of the Johannesburg Stock Exchange (JSE). More specifically, the study aimed to compare the performance of different asset-pricing models and their ability to account for market anomalies in different sectors of the JSE. Additionally, this study tested the applicability of the recent Fama and French five (FF5-factor) model, in estimating the expected return on the JSE. The study used a quantitative approach with secondary data over a period of 12 years starting from January 2002 to December 2014. The sample used in the study consists of monthly data obtained from McGregor BFA and the South African Reserve Bank. The study examined for the effects of size, value, January and momentum variables across six sectors of the JSE. This was accomplished by the use of various asset-pricing models such as the Capital asset pricing model (CAPM), the Fama and French three-factor model (FF3-factor), the Carhart four-factor model (C4F) and the recent five-factor model of Fama and French (FF5-factor). The study showed that whenever the asset-pricing models were not restricted, they tend to capture the market anomalies in four out of the six sectors examined. However, no market anomalies were found present in two of the six sectors analysed. In contrast, when the asset-pricing models are restricted, the asset-pricing models only seem to capture the effects of market anomalies in one of the six examined sectors. The findings in this study suggest that market anomalies are sensitive to model specifications, as restricting the models tends to capture the different market anomalies across the sectors of the JSE. The study also found that market anomalies differ across sectors and that some sectors are more efficient than others. The study also reveals that the FF5-factor model is able to account for expected returns on the JSE. In addition, the FF5-factor model tends to perform better when the model is restricted. It is also evident from the findings presented in this study, that the value anomaly loses its predictive power when profitability and investment variables are included in the model. Overall, the study illustrated that market anomalies have an effect on returns of the JSE, that the model specifications play an important role in an asset-pricing model and that the FF5-factor model is applicable on the JSE, however, it is not certain whether four or five factors apply to the South African market.

<p>This thesis investigates the profitability of the momentum strategy in the Swedish stock market. The momentum strategy is an investment strategy where past winners are bought and past losers are sold short. In this paper Swedish stocks are analyzed during the period 1999 – 2007 with the approach first used by Jegadeesh and Titman (1993). The results indicate that momentum investing is profitable on the Swedish market. The main contribution to the profits is derived from investing in winners while the losers in most cases do not contribute at all to total profits. The profits remain after correcting for transaction costs for longer termed strategies while they diminish for the shorter termed ones. Compared to the market index, buying past winners yield an excess return while short selling of losers tend to make index investing more profitable. The analysis also shows that momentum can not be explained by the systematic risk of the individual stocks. The evidence in support of a momentum effect presented in this thesis also implies that predictable price patterns can be used to make excess returns; this contradicts the efficient market hypothesis.</p>

<p>In this thesis, we have analyzed the ex-dividend stock price behavior in the London Stock Exchange to see if the stock prices really drop by the same amount as the dividend on the ex-dividend day. Our sample data covers 80 FTSE100 companies of the London stock exchange for the period 2001 to 2006.</p><p>To answer the research question: Do returns on the London Stock Exchange act in accordance with the efficient market hypothesis on the ex-dividend day? We used a deductive approach and test four hypothesis. The study was carried out by comparing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was tested for significance using the one sample t-test.</p><p>The results showed that there are significant differences in the observed figures from their theoretical or expected values. The observed raw price ratio is higher than the expected value of 1, implying that the stock price on the ex-dividend day drops by an amount that is lower than the dividend paid. Similarly, the market adjusted raw price ratio is also higher than the expected value of 1. The raw price drop and market adjusted price drop are lower than the dividend yield, indicating again that the stock price drops by an amount that is lower than the dividend paid.</p><p>Our results indicated that the null hypotheses stated are rejected since the drop in the stock prices is not equal to the amount of the dividend on the ex-dividend day.</p>

In this thesis, we have analyzed the ex-dividend stock price behavior in the London Stock Exchange to see if the stock prices really drop by the same amount as the dividend on the ex-dividend day. Our sample data covers 80 FTSE100 companies of the London stock exchange for the period 2001 to 2006. To answer the research question: Do returns on the London Stock Exchange act in accordance with the efficient market hypothesis on the ex-dividend day? We used a deductive approach and test four hypothesis. The study was carried out by comparing the actual value of the raw price ratio, market adjusted price ratio, raw price drop and market adjusted price drop to their theoretical values. The difference was tested for significance using the one sample t-test. The results showed that there are significant differences in the observed figures from their theoretical or expected values. The observed raw price ratio is higher than the expected value of 1, implying that the stock price on the ex-dividend day drops by an amount that is lower than the dividend paid. Similarly, the market adjusted raw price ratio is also higher than the expected value of 1. The raw price drop and market adjusted price drop are lower than the dividend yield, indicating again that the stock price drops by an amount that is lower than the dividend paid. Our results indicated that the null hypotheses stated are rejected since the drop in the stock prices is not equal to the amount of the dividend on the ex-dividend day.

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