A modified Corrado test for assessing abnormal security returns

Event studies typically use the methodology developed by Fama et al. [19699. Fama , E. , Fisher , L. , Jensen , M. and Roll , R. 1969 . The adjustment of stock prices to new information . International Economic Review , 10 ( 1 ) : 1 – 21 . [CrossRef] View all references. The adjustment of stock prices to new information. International Economic Review 10, no. 1: 1–21] to segregate a stock's return into expected and unexpected components. Moreover, conventional practice assumes that abnormal returns evolve in terms of a normal distribution. There is, however, an increasing tendency for event studies to employ non-parametric testing procedures due to the mounting empirical evidence which shows that stock returns are incompatible with the normal distribution. This paper focuses on the widely used non-parametric ranking procedure developed by Corrado [19896. Corrado , C. 1989 . A nonparametric test for abnormal security price performance in event studies . Journal of Financial Economics , 23 ( 2 ) : 385 – 95 . [CrossRef], [Web of Science ®] View all references. A nonparametric test for abnormal security price performance in event studies. Journal of Financial Economics 23, no. 2: 385–95] for assessing the significance of abnormal security returns. In particular, we develop a consistent estimator for the variance of the sum of ranks of the abnormal returns, and show how this leads to a more efficient test statistic (as well as to less cumbersome computational procedures) than the test originally proposed by Corrado (19896. Corrado , C. 1989 . A nonparametric test for abnormal security price performance in event studies . Journal of Financial Economics , 23 ( 2 ) : 385 – 95 . [CrossRef], [Web of Science ®] View all references). We also use the theorem of Berry [19413. Berry , A. 1941 . The accuracy of the Gaussian approximation to the sum of independent variates . Transactions of the American Mathematical Society , 49 ( 1 ) : 122 – 36 . [CrossRef] View all references. The accuracy of the Gaussian approximation to the sum of independent variates. Transactions of the American Mathematical Society 49, no. 1: 122–36] and Esseen [19458. Esseen , C. 1945 . Fourier analysis of distribution functions: A mathematical study of the Laplace–Gaussian law . Acta Mathematica , 77 ( 1 ) : 1 – 125 . [CrossRef] View all references. Fourier analysis of distribution functions: A mathematical study of the Laplace–Gaussian law. Acta Mathematica 77, no. 1: 1–125] to demonstrate how the distribution of the modified Corrado test statistic developed here asymptotically converges towards the normal distribution. This shows that describing the distributional properties of the sum of the ranks in terms of the normal distribution is highly problematic for small sample sizes and small event windows. In these circumstances, we show that a second-order Edgeworth expansion provides a good approximation to the actual probability distribution of the modified Corrado test statistic. The application of the modified Corrado test developed here is illustrated using data for the purchase and sale by UK directors of shares in their own companies

Time varying costs of capital and the expected present value of future cash flows

The use of an inter-temporally constant discount rate or cost of capital is a strong assumption in many exante models of finance and in applied procedures such as capital budgeting. We investigate how robust this assumption is by analysing the implications of allowing the cost of capital to vary stochastically over time. We use the Feynman–Kac functional to demonstrate how there will, in general, be systematic differences between present values computed on the assumption that the currently prevailing cost of capital will last indefinitely into the future and present values determined by discounting cash flows at the expected costs of capital that apply up until the point in time at which cash flows are to be received. Comparisons are also made with the environmental economics literature where similar problems have been addressed by invoking a ‘gamma discounting’ methodology

An empirical and analytical study of chinese mergers and acquisitions

Over the last several years (and especially since China's admission to the World Trade Organisation in 2001) merger and acquisition (M&A) activities in China have increased significantly as a result of the rapid growth in the Chinese economy and the measures which the Chinese government has taken to modernise the laws and regulations which govern its securities markets. Despite this, only a few researchers have studied M&A activities in China in any depth. Moreover, such research as has been conducted on Chinese M&A activities is mainly concerned with the laws and regulations affecting the area and not with their economic consequences. Hence, the particular concern of this dissertation is with the economic benefits that accrue to the shareholders of Chinese acquiring and target firms from the M&A activities that have occurred in the People s Republic of China over the last twenty years. In particular, our study encompasses a theoretical, institutional and empirical analysis of Chinese M&A activities. M&A activities in China are governed by a number of laws and regulations of which the Takeover Measures, 2006, is undoubtedly the most important. Our analysis in the early part of the dissertation summarises the legal framework under which M&A activities are conducted in China. In particular, the Takeover Measures, 2006 aim to make Chinese laws in the M&A area more compatible with best international practice. Furthermore, a new Anti-Monopoly Law, which addresses the anti-trust issues associated with mergers and acquisitions came into force on 1 August 2008. Amongst other things, this new Anti-Monopoly Law addresses issues of anti-trust and declaration thresholds in M&A activities in China. Besides these issues, the early chapters of the dissertation summarise the Chinese laws dealing with cross-border mergers and acquisitions, the laws relating to the issue of new shares, the laws relating to share swap transactions and the important provisions affecting the regulation of special purpose companies (SPCs). The dissertation then turns to an empirical analysis of the economic benefits which accrue to the shareholders of Chinese target and Chinese acquiring firms as a result of their M&A activities. Our analysis is based on the standard market model methodology using both the Dimson (1979) and Ordinary Least Squares (OLS) estimates of equity betas. We also employ an hitherto unused nonparametric testing procedure based on the Corrado (1989) rank test in order to enhance the robustness of our empirical analysis. Suffice it to say that the empirical analysis summarised in the dissertation shows that there are significant abnormal returns around the takeover announcement date for the holders of equity securities in Chinese target firms. This is a result which mirrors much of the empirical research conducted on M&A activities in western economies. Interestingly, however, a significant proportion of these abnormal returns decay away within a few weeks following the takeover announcement date. In contrast, there are few, if any, economic benefits for the holders of equity securities in Chinese acquiring firms from their M&A activities. In this respect our results for Chinese acquiring firms are very similar to those obtained by researchers for western acquiring firms, although there are some important differences. In particular, there appear to be statistically significant and positive abnormal returns for shareholders of Chinese acquiring firms around the takeover announcement date but these generally decay away over the next ten to fifteen trading days thereby leaving the shareholders of Chinese acquiring firms with no significant benefits from their M&A activities. We provide some possible explanations for this phenomenon by linking our empirical results with the Chinese political, economic and capital systems. A fundamental decision the directors of acquiring firms must make is whether the mode of consideration for takeovers ought to be in cash or some alternative medium of exchange. Prior research in western countries shows that the mode of consideration used in takeovers can have a significant impact on the abnormal returns which accrue to the shareholders of both acquiring and target firms. Our empirical analysis of this issue shows that when the mode of consideration is purely in cash the abnormal returns which accrue to the shareholders of Chinese target firms around the takeover announcement date are positive and significantly different from zero. In contrast, there are no economic benefits (and indeed, probably economic losses) for the shareholders of Chinese target firms when the consideration for takeovers is other than purely in cash. For Chinese acquiring firms there are significant positive abnormal returns when the consideration for takeovers is other than purely in cash. However, when cash is used as the sole mode of consideration by Chinese acquiring firms there are very few, if any, economic benefits for their shareholders. The concluding sections of the dissertation note that our calculation of the abnormal returns that accrue to firms involved in Chinese M&A activities is based exclusively on the standard market model - which is empirical counterpart of the Capital Asset Pricing Model (CAPM). In recent years, however, Fama and French (1992, 1993, 1995, 1996) amongst other authors have suggested that the CAPM has serious deficiencies and that these deficiencies flow through to the standard market model on which the empirical analysis of Chinese M&A activities summarised in this dissertation is based. We show, however, that the Fama and French Asset Pricing Model (1992, 1993, 1995, 1996) has numerous deficiencies of its own and that to base the calculation of abnormal returns upon this model has the potential to lead to a seriously flawed analysis of the abnormal returns which accrue to the shareholders of Chinese firms involved in M&A activities and on which our empirical analysis is based. Key Words: M&A activities, Modified Corrado test, Corrado test, Patell test, average abnormal returns (AARs), cumulative average abnormal returns (CAARs), mode of consideration, A shareholders, B shareholders, H shareholders, Chinese target firms, Chinese acquiring firms

Spatial second-order positive and asymptotic preserving filtered PNP_N schemes for nonlinear radiative transfer equations

A spatial second-order scheme for the nonlinear radiative transfer equations is introduced in this paper. The discretization scheme is based on the filtered spherical harmonics ($FP_N$) method for the angular variable and the unified gas kinetic scheme (UGKS) framework for the spatial and temporal variables respectively. In order to keep the scheme positive and second-order accuracy, firstly, we use the implicit Monte Carlo linearization method [6] in the construction of the UGKS numerical boundary fluxes. Then, by carefully analyzing the constructed second-order fluxes involved in the macro-micro decomposition, which is induced by the $FP_N$ angular discretization, we establish the sufficient conditions that guarantee the positivity of the radiative energy density and material temperature. Finally, we employ linear scaling limiters for the angular variable in the $P_N$ reconstruction and for the spatial variable in the piecewise linear slopes reconstruction respectively, which are shown to be realizable and reasonable to enforce the sufficient conditions holding. Thus, the desired scheme, called the $PPFP_N$-based UGKS, is obtained. Furthermore, in the regime $\epsilon\ll 1$ and the regime $\epsilon=O(1)$, a simplified spatial second-order scheme, called the $PPFP_N$-based SUGKS, is presented, which possesses all the properties of the non-simplified one. Inheriting the merit of UGKS, the proposed schemes are asymptotic preserving. By employing the $FP_N$ method for the angular variable, the proposed schemes are almost free of ray effects. To our best knowledge, this is the first time that spatial second-order, positive, asymptotic preserving and almost free of ray effects schemes are constructed for the nonlinear radiative transfer equations without operator splitting. Various numerical experiments are included to validate the properties of the proposed schemes

Intelligent Modeling and Verification

System modeling tends to have many complex features, and uncertainties often lead to numerous complications and influence many important aspects related to its applications. Intelligent modeling merges mathematical and computer based approaches, and it utilizes pioneering new scientific methods and cutting-edge technologies

Effect of Processing Parameters and Temperature on Sliding Wear of H62 Copper Alloy Modified by Friction Stir Surface Processing

H62 copper alloy surface was modified by friction stir surface processing (FSSP) with different processing parameters including rotation rate, penetration depth and processing speed of the stirring tool under the room temperature (25 °C). Then friction and wear experiments of the surface were carried on at different temperatures. The experimental results show that (i) the specimens hardness initially increases with increasing the wear test temperature, then decreases with further increasing the temperature for fixed rotation rate and penetration depth, (ii) the wear resistances of the specimens decrease as the rotation rate of the stirring tool increases for fixed penetration depth and wear test temperature, (iii) the wear resistances of the specimens decrease as the penetration depth increases for constant rotation rate and wear test temperature. It is found that the optimal processing parameters are rotational speed 1200 rpm, temperature 100 ℃ and penetration depth 0.2 mm, respectively, which can greatly improve the wear performance of the H62 surface. Therefore, FSSP is a promising technique for modifying H62 copper alloy, which can be widely applied in ship manufacturing