Do Golden Parachutes increase CEO’s DESIRE to be taken over? empirical evidence from australia and united states

This study investigates whether the large payouts that are available to Chief Executive Officers (CEOs) from a change in corporate control (takeover) do motivate some CEOs to seek acquisition of their firms by making them more attractive to a takeover bid. Using Australian and the US data, employing OLS regression, we report that there is a significant relationship between a CEOs change in control payments and their firm’s net cash levels (one of the key factors of takeover attractiveness). Our empirical results also indicate that CEOs desire their firms to be acquired by decreasing shareholders’ equity, thus supporting the view that change in control payments exist primarily for incumbent managers. Our findings provide support to the proposition that managers enjoy having large cash balances to be available to them as it allows them with greater opportunities to derive personal benefit from it. Therefore, our findings suggest that managers prefer to have large cash balances available to them to ensure their future wellbeing by setting up favourable terms in the control agreements

Effects of New Zealand general elections on stock market returns

This paper examines stock returns under both National and Labour governments in New Zealand, offering further insight into the existence of the political cycle effect. Findings indicate the existence of a political cycle effect in stock returns, consistent with a number of recent studies performed within both Australia and New Zealand. New Zealand’s right-of-centre National party are found to be associated with significantly higher stock returns during their terms in office than their left-of-centre counterparts, the Labour party. Our findings add to a growing body of literature, particularly outside of the United States, where investors can expect stock returns to vary depending upon the governing political party and can make better investment decisions accordingly

Correlation and benefits of portfolio diversification among equity markets of developed countries and emerging countries in South East Asia region

The specific objective of this paper is to generate and analyze the average correlation coefficient or return, between the Malaysian equity market and equity markets in other selected countries during 17 year period from January 1987 to December 2003. The period of 17 years is further divided into 13 different sub-periods divided by pre, during and post crisis to study the differences in pattern of average correlation coefficients during the sub-periods. The study found that average correlations were higher during the non crisis periods as compared to crisis periods. The study also divided the group of countries according to region (South East Asia), developed countries and emerging countries. It is found that the Malaysian market is more correlated with the regional market and emerging markets as compared to the developed markets. The study also analyzes the evolution of correlation of the Malaysian market and other countries throughout the study period. It concludes that there is a weak or no linear relationship on correlations between the Malaysian market and foreign markets and the time factor. This suggests that there is instability in market correlations overtime. In the perspective of Malaysian investors, this paper concludes that international portfolio diversification still offers diversification benefits

Does bursa Malaysia overreact?

Findings for the whole period from January 1987 to December 2006 reveal that loser has insignificantly becomes loser and winner has significantly reversed in the subsequent period. Arbitrage portfolio does not provide any significant abnormal return thus, not consistent with the overreaction hypothesis. This is due to the reason that Malaysian investors are overoptimistic. After controlling for size, both small and large stocks have significantly support the overreaction hypothesis even after adjustment for difference in risk. No evidence of January effect is reported during the period; however, there is evidence of Chinese New Year effect documented in the findings. The study also shows that Malaysian Stock Market overreacts prior to 1997 Asian Financial crisis. During the post crisis, the results are not consistent with overreaction hypothesis. One possible reason to this behaviour is that investors are more aware of the phenomenon and have altered their trading strategy. As a result, overreaction behaviour diminishes and stock market gradually becomes efficient in the post crisis. These findings suggest that stock overreaction behaviour in Malaysian stock market only benefited the short-term investors. However, when the strategy is based on a longer formation period such as 5-year formation period, long-term investors are able to earn significant positive abnormal returns

Stock Overreaction Behaviour in Bursa Malaysia: Does the Length of the Formation Period Matter?

This paper investigates whether stock overreaction behaviour in Malaysian stock market is sensitive to the length of the formation period. Using the basic framework of De Bondt and Thaler (1985), this study find that stock overreaction behaviour in this market is sensitive to the length of the formation period. Significant evidence of stock overreaction effect is documented in the longer formation period of up to 5-year, while for the medium formation period of 2-year, there is no clear evidence of stock overreaction behaviour. Evidence of stock overreaction behaviour is also reported for the shorter-term of 1-year, however, it may not be economically profitable after taken into account the transaction cost. This study also shows that size cannot explain the documented overreaction effect. However, the results suggest that the overreaction effect subsided after adjustment to time-varying risk

Stock overreaction and financial bubbles: Evidence from Malaysia

This paper attempts to seek linkage between stock overreaction behaviour and financial bubbles in the Malaysian stock market. Monthly data over a period between January 1987 and December 2006 shows no clear evidence of stock overreaction behavior in the market. However, when the study split the analysis into two sub-periods, evidence of stock overreaction behaviour becomes significant in the pre-crisis sub-period, but there is no significant evidence of financial bubbles in the same sub-period. During the post crisis, evidence of stock overreaction seems to diminish, and evidence of financial bubbles however, is observed in the period. This study believes that evidence of bubbles observed in the Malaysian stock market in the post crisis period is due to stock overreaction that took place in the market prior to the crisis

Does Syariah-Compliant stocks overreact?

This is a preliminary study on stock overreaction behavior of syariah compliant stock in Bursa Malaysia over the period between January 1988 and December 2009. Results show that syariah compliant stock in Bursa Malaysia, like their conventional counterparts overreact. The overreactions are more pronounced during the sub-period prior to 1997 Asian Financial Crisis and Global 2008 Crisis. After the crisis the overreaction behavior seems to diminish

Short run stock overreaction: evidence from Bursa Malaysia

The objective of this paper is to discuss evidence of short run stock overreaction with respect to the arrival of dramatic events in the Malaysian stock market. The findings reveal that Malaysian stock market overreacts to economic crisis and extraordinary political events. The study shows significant overreaction behaviour existed in this market upon announcement of the removal of the deputy prime minister and announcement of the resignation of the prime minister. In contrast, evidence of underreaction was detected upon announcement of the national election. With regards to dramatic international events, Malaysian stock markets only disclose evidence of stock overreaction behaviour to SARS outbreak

Overreaction of syariah stocks: does size matter?

The purpose of the study is to investigate stock overreaction behavior among syariah stocks in Bursa Malaysia using basic framework of De Bondt and Thaler (1985). Like its conventional counterpart, evidence of stock overreaction behavior is also observed in syariah compliant stocks in Malaysia. The study documents that both winner and loser portfolios experience reversal behavior even after adjustment for size, thus implies that size does not matter. Furthermore, after adjustment for size, loser portfolios outperform winner portfolios in the test period. This indicates that syariah compliant stocks in Malaysia also provide opportunity of earning abnormal profit by resorting to contrarian strategy