Event Study of Saic Stock Price

Topics: Regression analysis, Stock market, Linear regression Pages: 9 (2800 words) Published: May 21, 2011
Newcastle University Business School

MA International Financial Analysis 2010/11

Techniques For Data Analysis

SAIC Stock Prices and Its Participation in GM’s IPO

(Keywords: Event Study, Daily Stock Return, the OLS Market Model, SAIC, IPO)

Tutors Name: A.D Miller
Student Name: Chen Kai (Jimmy)
Student Number: b109000774
Date of submission: 10th /May/2011
Words Count: 5000
Table of Contents
* Introduction
* Overview of Market Efficiency and Event studies
1. Market Efficiency
2. Steps of This Event Study
* Event Study Methodology
1. Choice and Collection of Data
2. Estimation Period and Test Period
3. Alternative Measurement Metrics
a) Daily Data or Monthly Data
b) Arithmetic Return or Logarithmic Return
c) The Advantages of The OLS Market Model
4. The Analysis of the Regression Results
5. Tests for OLS Assumptions and Coefficients
d) The Durbin-Watson Test for Autocorrelation
e) Adjustments to Autocorrelation
f) The Goldfeld-Quandt Test for Heteroscedasticity
g) Tests for the Significance of Coefficients
h) Chow Test for The Stability of Coefficients
6. Abnormal Returns and Cumulative Abnormal Returns
* Discussion of Results and Findings
* Conclusion
* Lists of Bibliography

Over the past decades, the availabilities of computers and statistical software have increased dramatically. As a result of these growing availabilities, it is becoming increasingly feasible to utilize the power of statistical software to study the impact of firm-specific information on a company’s stock return. In recent years, the effects of mergers, acquisitions and earnings announcement have been studied thoroughly. However, there has been very little research reported on the impact of a company’s participation in its partner’s initial public offerings (IPO). SACI, the biggest Chinese automaker, has participated in General Motors (GM)’s IPO by buying its 1 percent stake last year. It is a historic event in both China and US’s automotive industry. This aim of this study is, therefore, to examine the SAIC’s stock return response to a sequence of events leading to the final purchase of GM’IPO. The overall structure of this paper takes the form of four sections. The first section begins by laying out related financial theories of the research. The second section looks at each step of the event-study methodology. Moreover, it provides a comparison between different measurement metrics involved in the event-study methodology. It then gives the justification for the adoption of daily data and the OLS market model, and therefore the AR, CAR and their t-statistics are computed based on this procedure. The third section presents an explanation of the effects of the five events based on the results of AR and CAR. Finally, the last section summarizes the methodologies and findings of this study. Overview of Market Efficiency and Event Studies

Market Efficiency
Watson and Head (1970 cited Fama, 2010: 37) state that the efficient market hypothesis (EMH) means that the security prices effectively incorporate all relevant available information. They therefore indicate that the market efficiency refers to the extent of the price adjustment to new events. Bodie, Kane and Marcus (2003) summarize that there are three forms of the EMH: • The “weak” form EMH states that current stock prices only incorporate historical information. • The “semi-strong” form EMH asserts that current stock prices already incorporate all public available information. • The “strong” form EMH states that all relevant information, including inside information is impounded in current stock prices. There are many...
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