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One of the most controversial issues for long-term stock performance is whether the presence of anomalies is against the efficient market hypothesis. The methodologies to measure abnormal returns applied in the long-run event studies are questioned for their reliability and specification. This thesis compares three major methodologies via a simulation process based on the UK stock market over a period of 1982 to 2008 with investment horizons of one, three and five years. Specifically, the methodologies that are compared are the event-time methods based on models (Chapter 3), the event-time methods based on reference portfolios (Chapter 4), and the calendar-time methods (Chapter 5). Chapter 3 covers the event-time approach based on the following models which are used to estimate normal stock returns: the market-adjusted model, the market model, the capital asset pricing model, the Fama-French three-factor model and the Carhart four-factor model. The measurement of CARs yields misspecification with higher rejection rates of the null hypothesis of zero abnormal returns. Although the application of standard errors estimated from the test period improves the misspecification, CARs still yield misspecified test statistics. When using BHARs, well-specified results are achieved when applying the market-adjusted model, capital asset pricing model and Fama-French three-factor model over all investment horizons. It is important to note that the market model is severely misspecified with the highest rejection rates under both measurements. The empirical results from simulations of event-time methods based on reference portfolios in Chapter 4 indicate that the application of BHARs in conjunction with p-value from pseudoportfolios is appropriate for application in the context of long-run event studies. Furthermore, the control firm approach together with student t-test statistics is proved to yield well-specified test statistics in both random and non-random samples. Firms in reference portfolios and control firms are selected on the basis of size, BTM or both. However, in terms of power of test, these two approaches have the least power whereas the skewness-adjusted test and bootstrapped skewness-adjusted test have the highest power. It is worth noting that when the non-random samples are examined, the benchmark portfolio or control firm needs to share at least one characteristic with the event firm. The calendar-time approach is suggested in the literature to overcome potential issues with event-time approaches like overlapping returns and calendar month clustering. Chapter 5 suggests that both three-factor and four-factor models present significant overrejections of the null hypothesis of zero abnormal returns under an equally-weighted scheme. Even for stocks under a value-weighted scheme, the rejection rate for small firms shows overrejection. This indicates the small size effect is more prevalent in the UK stock market than in the US and the calendar-time approach cannot resolve this issue. Compared with the three-factor model, the four-factor model, despite its higher explanatory power, improves the results under a value-weighted scheme. The ordinary least squares technique in the regression produces the smallest rejection rates compared with weighted least squares, sandwich variance estimators and generalized weighted least squares. The mean monthly calendar time returns, combining the reference portfolios and calendar time, show similar results to the event-time approach based on reference portfolios. The weighting scheme plays an insignificant role in this approach. The empirical results suggest the following methods are appropriately applied to detect the long-term abnormal stock performance. When the event-time approach is applied based on models, although the measurement of BHARs together with the market-adjusted model, capital asset pricing model and Fama-French three-factor model generate well-specified results, the test statistics are not reliable because BHARs show severe positively skewed and leptokurtic distribution. Moreover, the reference portfolios in conjunction with p-value from pseudoportfolios and the control firm approach with student t test in the event-time approach are advocated although with lower power of test. When it comes to the calendar-time approach, the three-factor model under OLS together with sandwich variance estimators using the value-weighted scheme and the mean monthly calendar-time abnormal returns under equal weights are proved to be the most appropriate methods.

The purpose of this study was to investigate what impact the working capital policies have on the stock performance on the Swedish stock market during the years 2009-2012. Furthermore, the study explores if the firm size or industry of the firms have any impact on the working capital policy and if the theory of risk/return tradeoff indicating that an aggressive policy should generate a higher risk premium holds. This topic is rather unexplored since earlier studies have focused on working capital policies relationship with accounting profit rather than with stock return.In order to come up with answers to the research questions a quantitative research method has been used and data has been collected from the companies listed on the Swedish stock exchanges annual reports and stock prices from the Thomson Reuters Datastream. A database with all numbers and calculations was then constructed in Excel in order to easily transform the numbers into SPSS where the statistical tests where done. As statistical test the Pearson’s correlation was used to find if there is and correlation between working capital and stock return, beta and standard deviation. These tests where then done again but with the companies divided into policies, firm size and sectors.The results of this study show no clear relationship between Swedish firm’s working capital policy and the stock return. Regarding the relation with risk and return, the result indicates that working capital has a significant correlation with risk and that the aggressive policy of managing working capital is more risky. Moreover the size of firms does neither affect the relationship between working capital policies and stock return nor the risk/ return tradeoff. However, when dividing the sample into sectors especially one industry resulted in some standout findings. The industrial sector had significant correlations between level of working capital and risk/return. Concluding, there is no significant relationship between stock performance and working capital policies but after conducting this research we still regard working capital as one important component to take into account both for managers and investors.

We investigate if the size of goodwill compared to total assets has any effect on the shareholders return on companies listed on the Swedish Stock market. We put up two different hypotheses with a foundation from previous research and later dismiss one of them. Our evidence does not show any indicators that the size of goodwill have an effect on the shareholders return, which brings us to believe that there, from a share holders point of view, isn’t any need for concern regarding the standards about accounting for goodwill as stated by IFRS.

This thesis examines whether mergers and acquisitions (M&A), ranging from 2009 to 2020, are value-generating for acquiring shareholders in the short-term and long-term of companies listed on the Stockholm Stock Exchange. A cohesive and integrated theoretical framework is formed in which six firm-specific and deal-specific variables are hypothesized to have varying impacts on both short- and long-term stock performance for acquiring shareholders. An event study was conducted to measure the short-term stock performance, i.e. cumulative abnormal returns (CAR), and long-term stock performance, i.e. buy-and-hold abnormal returns (BHAR). We find that M&A transactions are, on average, value-generating for acquiring shareholders in both the short term and the long term. Among the significant findings of the variables examined, firm size was negatively related to short-term stock performance but positively related to BHAR. The relative size of the transaction was found to be positively related to CAR. Furthermore, transactions mediated with cash were found to be positively related to BHAR. Lastly, related transactions were found to be positively related to CAR, although not when accounting for robust standard errors.

Factor models are very useful and popular models in finance. In this project, factor models are used to examine hidden patterns of relationships for a set of stocks. We calculate the weekly rates of return and analyze the correlation among those variables. We propose to use Principal Factor Analysis (PFA) and Maximum-likelihood Factor Analysis (MLFA) as a data mining tool to recover the hidden factors and the corresponding sensitivities. Prior to applying PFA and MLFA, we use the Scree Test and the Proportion of Variance Method for determining the optimal number of common factors. Then, rotation for PFA and MLFA were performed to improve the first order approximations. PFA and MLFA were used to extract three underlying factors. It was determined that the MLFA provided a more accurate estimation for weekly rates of return

This paper examines the stock performance around initiation announcements of open market share repurchase programs, the price impact of repurchase trading and the long-run abnormal stock performance following the initiation announcements in a European regulatory framework. The study uses a unique dataset on initiation announcements and actual repurchases conducted by firms listed on the Stockholm Stock Exchange during the period 2000-2009. The results show that initiation announcements of open market repurchase programs exhibit a two-day abnormal return of approximately 2%. The price impact on the actual repurchase days is positively correlated with the daily repurchase volume, and is both statistically and economically significant during the first 3 repurchase days in a repurchase program. The long-run abnormal stock performance is positively associated with the fraction of shares bought in the program and is approximately 7% the first year following the initiation announcement. The results indicate that repurchase trading provides price support and that the market participants detect and perceive the initiation announcement and the first repurchase days in a repurchase program as a signal of undervaluation. / <p>QC 20130515</p>

The Say on Pay vote, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by Barack Obama in July 2010, is a non-binding vote that either approves or disapproves of the compensation given to Named Executive Officers. As of June 21, 2012, there have been 103 companies that have failed to reach 50% approval in this vote. For this paper I analyze the 103 companies over event windows of two, four, and ten days around the date of the failure to test for statistically significant abnormal stock market returns. None of the average cumulative abnormal returns for the three event windows are significant at any level, and I find no evidence that failing the Say on Pay vote corresponds to an increase or decrease in stock market returns.

Investment decisions grounded in personal values and societal norms has seen a growth in the last decades, to a point where large institutional investors are abstaining from certain industries that share a specific characteristic altogether. The affiliation with sinful industries that promote human vice is not viewed as socially responsible in the eyes of the public, a reason why socially responsible investment funds that screen out these companies has experienced an increase in popularity. This study sets out to investigate the performance of American sin stocks in an attempt to increase the awareness of how these shunned industries has performed. While the existing literature provides evidence which proves sin stocks outperforms the market, we will provide further evidence concentrating on a mix of industries previously not focused on. Additionally we will extend the observation period beyond what has been done in the past. In this study, the definition of sin incorporates the industries of alcohol, defense, gambling and tobacco, and investigates the performance of a survivorship-free sample of 159 companies between July 1973 and June 2012. As performance measure, the four factor model is employed to capture any abnormal performance in relation to the market with three additional risk factors. In addition, we set out to investigate the performance of the different industries individually, to find if there is any that acts as a driver of the performance. Further, we look into the persistency of the performance over time. We find that the sample outperforms the market with 5.8% annually, and where the tobacco industry stands out with the highest abnormal return, the other industries grouped together still produce significant outperformance. The sinful index examined in this degree project has shown persistent performance, with no obvious trends of growth or decline. Unlike what has been found in previous research, the sample has shown a substantial difference in performance depending on the weighting scheme applied, not only individually for the industries, but also collectively.

This paper examines the impact of USD and EUR exchange rates on the Swedish stock market performance for different economic sectors over a time period of ten years (2003-2013). The growing integration between foreign exchange markets and stock markets with the wide spread use of hedging and diversification policies made it necessary to test the degree of impact these two distinct markets share between each other. Number of studies, were done studying the relationship between the exchange rates and stock performance combining and comparing different economies and currencies. Nevertheless, research gap prevailed when it came at the point of the studying the relationship on Swedish stock and foreign exchange market. The research was conducted with the quantitative method. Initially we have tested how the performance of Swedish stock market is correlated with the return of the USD and EUR in different economic sectors over different time periods. Later, we try to investigate if there is any spillover effect flows from the exchange market to the Swedish stock market. The Pearson’s correlation coefficient and GARCH (1,1) model were applied to study the correlation and spillover effect between the exchange and stock return respectively. Our empirical study showed that there is very low correlation which is statistically insignificant between the two different markets. Correlations were found to be significantly varied across the different economic sectors in different time periods. Moreover empirical study supported that the spillover effect exists and showed that movement of exchange rates will affect the future performance of stock market. The significant conclusions were that USD and EUR can be used as portfolio diversification and during the volatile exchange market, investors should diversify or hedge their risk domestically and vice versa. The implications of this finding is particularly very important for the portfolio managers when devising their hedging policies and diversifying their portfolios in order to minimize their unsystematic risk.