Earnings Management in Polish Companies

This paper presents results of the investigation of a phenomenon known as "earnings management'' (EM) among the companies listed on the Polish stock market. The distribution of earnings per share (EPS) for the stocks around the threshold value of "zero" and the threshold of "recent performance" was analyzed in the period of years 1997-2010. Moreover, the changes of earnings for the stocks, which are suspected to manipulate their earnings, were also investigated. The results, which indicate asymmetric distribution of earnings around the zero threshold along with the relative deterioration of earnings in the year following the period when the companies were suspected to conduct earnings management practices, provide evidence that this phenomenon exists among Polish stock market companies.W artykule zaprezentowano rezultaty analizy zjawiska znanego jako "zarządzanie zyskami'', wśród spółek z polskiego rynku kapitałowego. Przeanalizowano rozkład zysku na akcję wokół progu "zero'' oraz progu wyznaczonego w oparciu o wartości zysku na akcję z okresu przeszłego w okresie 1997-2010. Wyniki badania potwierdziły występowanie asymetrii rozkładu zysku na akcję wokół progu "zero'' oraz spadek zysków w latach następujących po "zarządzaniu zyskiem'' co wskazuje na występowanie analizowanego zjawiska na polskim rynku kapitałowym

Do Business Models Matter? Evidence from the SRI Companies Performance and the COVID-19 Pandemic.

Business models of companies are rarely analysed in the context of their financial performance, so little is known about how much they should actually matter in the decision-making processes of investors. In this study, we examine the performance of the SRI stocks portfolios in the US market, which are divided into four main business models types. Our results evidence that Brokers business model clearly outperformed the market in the whole period from February 2016 to January 2021. However, when the entire sample is divided into the pre-COVID-19 sub-sample and COVID-19 sub-sample, the outperformance and underperformance effects among the SRI firms disappeared during the COVID-19 pandemic period

Bitcoin as a new currency.

Bitcoin is the most popular financial instrument within the new cryptocurrencies class, which emerged in the wake of the financial crisis of 2007/2008. The purpose of this paper is to provide an analysis of Bitcoin from the perspective of the Polish market investor. More specifically, the aim of the empirical research presented in this study has been twofold: (1) comparison of Bitcoin with other currencies using returns and risk captured by the standard deviation of returns and (2) assessment of the sensitivity of the BTC/PLN exchange rate to the NBP’s monetary policy announcements. Bitcoin appears to be weakly related to other currency exchange rates against the Polish zloty and the monetary policy announcements of the National Bank of Poland (NBP) have, effectively, no influence on the determination of the BTC/PLN exchange rate. We discuss extensively the Bitcoin as a new asset on the financial market and we present the investigation of the BTC/PLN reactions to the monetary policy announcements in Poland, which is a novel analysis for this instrument using the Polish market data

Socially responsible investment and market performance: the case of energy and resource companies.

Do financial markets reward the energy and resource companies for adopting socially responsible practices? In this study, we investigate the stock market performance of major international energy and resource firms, classified within the socially responsible investment (SRI) category, from 2005 to 2016. We simulate investments in the portfolios of the SRI energy and resource companies stocks during this 11-year period and we further assess their risk-adjusted performance. The returns of the energy and resource SRI portfolio as a whole were neither consistently superior nor inferior to those of the benchmark indices. However, there exist substantial differences across the individual sub-sectors. The overall results show that markets do not reward or penalize the energy and resource firms for their SRI attitudes. We also find that the crude oil price consistently had a significant influence on the stock returns of the SRI energy and resource companies

The COVID-19 storm and the energy sector: the impact and role of uncertainty.

Prior research has shown that energy sector stock prices are impacted by uncertainty. The coronavirus (COVID-19) pandemic has given rise to widespread health and economic-related uncertainty. In this study, we investigate the magnitude and the timing of the impact of COVID-19 related uncertainty on returns and volatility for 20 national energy indices and a global energy index using ARCH/GARCH models. We propose a novel "overall impact of uncertainty" (OIU) measure, explained using a natural phenomenon analogy of the overall impact of a rainstorm, to gauge the magnitude and intensity of the impact of uncertainty on energy sector returns. Drawing upon economic psychology, COVID-19 related uncertainty is measured in terms of searches for information relating to COVID-19 as captured by Google search trends. Our results show that the energy sectors of countries further west from the outbreak of the virus in China are impacted to a greater extent by COVID-19 related uncertainty. A similar observation is made for net energy and oil exporters relative to importers. We also find that the impact of uncertainty on most national energy sectors intensified and then weakened as the pandemic evolved. Additional analysis confirms that COVID-19 uncertainty is part of the composite set of factors that drive energy sector returns over the COVID-19 period although its importance has declined over time

Google search trends and stock markets: sentiment, attention or uncertainty?

Keyword based measures purporting to reflect investor sentiment attention or uncertainty have been increasingly used to model stock market behaviour. We investigate and shed light on the narrative reflected by Google search trends (GST) by constructing a neutral and general stock market-related GST index. To do so we apply elastic net regression to select investor relevant search terms using a sample of 77 international stock markets. The index peaks around significant events that impacted global financial markets moves closely with established measures of market uncertainty and is predominantly correlated with uncertainty measures in differences implying that GST reflect an uncertainty narrative. Returns and volatility for developed emerging and frontier markets widely reflect changing Google search volumes and relationships conform to a prior expectations associated with uncertainty. Our index performs well relative to existing keyword-based uncertainty measures in its ability to approximate and predict systematic stock market drivers and factor dispersion underlying return volatility both in-sample and out-of-sample. Our study contributes to the understanding of the information reflected by GST their relationship with stock markets and points towards generalisability thus facilitating the development of further applications using search and return data

The impact and role of COVID-19 uncertainty: a global industry analysis.

The novel 2019 coronavirus (COVID-19) has resulted in uncertainty that permeates every aspect of life and business. In this study we undertake a comprehensive analysis of the impact of COVID-19 related uncertainty on global industry returns and volatility using a sample of 68 global industries and Google Trends search data to measure COVID-19 related uncertainty. The results indicate that COVID-19 related uncertainty negatively impacts returns on all industries and generally leads to higher volatility. We interpret these findings as uncertainty related to the future financial performance of firms and emerging opportunities for some industries. Certain industries are more resilient than others and increased uncertainty is not only necessarily associated with industries that experienced the largest negative returns. We also find that new factors emerged in the return generating process during the COVID-19 period. We show that despite an uncertain climate, some industries performed well, yielding positive cumulative abnormal returns that at times are greater than during the pre-COVID-19 period. The implications of our findings for investors are discussed

Has the Risk of Socially Responsible Investments (SRI) Companies Stocks Changed in the COVID-19 Period? International Evidence

In this study, we investigate changes in risk of Socially Responsible Investments (SRI) companies in the periods before and during the COVID-19 pandemic relying on a broad dataset covering SRI indices from 35 markets analysed between 2016 and 2021. Our results provide evidence that the systematic risk of the SRI firms, measured by the beta coefficient, increased in most countries around the world during the COVID-19 period. However, some markets in our sample show remarkable resilience and stability in terms of the changes in their risk patterns. In particular, the systematic risk of SRI companies from the markets in East Asia decreased during the COVID-19 pandemic, which contrasts with substantial increases in the systematic risk of the SRI firms from the SRI indices in all other regions around the world

How Much Do the Central Bank Announcements Matter on Financial Market? Application of the Rule-Based Trading System Approach

This paper proposes a rule-based trading system to investigate how much the central bank’s announcements matter on a financial market. We design a novel investment strategy and we simulate trades in order to quantify their profitability in the out–of–sample period using the data from a broad financial market in Poland spanning across 3 segments: stock market, foreign exchange market and bonds market. Our results show that the individual transactions delivered profits in 72.7% cases. The overall profitability across all events and all trading horizons was positive in as many as 63.6% cases. Although the financial market in Poland was only moderately sensitive to the NBP central bank’s communication, the identified types of the monetary policy announcements are economically significant and very useful for the investors, who can trade based on them and exploit them directly in the design of the rule-based trading strategies

The only certainty is uncertainty: An analysis of the impact of COVID-19 uncertainty on regional stock markets

Uncertainty surrounding COVID-19 is widespread. We investigate the timing and quantify the impact of COVID-19 related uncertainty on returns and volatility for regional market aggregates using ARCH/GARCH models. Drawing upon economic psychology, COVID-19 related uncertainty is measured by searches for information as reflected by Google search trends. Asian markets are more resilient than others. Latin American markets are most impacted in terms of returns and volatility. For most regions, there is evidence of an increasing impact of COVID-19 related uncertainty which dissipates as the crisis evolves. We confirm that Google search trends capture uncertainty by comparing this measure against alternative uncertainty measures