Essay on Data and Methodology

Submitted By minnaface
Words: 1200
Pages: 5
Open Document
Data and Methodology
We are assessing the market reaction for the event of an acquisition, for GKN Plc and Vitec Group Plc and (the acquiring companies), separately and together. GKN Plc announced on Monday 18th July 2011 that it had acquired the entire issued share capital of Stromag Holding GmbH (Stromag). Vitec Group plc (Vitec) announced on 30 September 2011 that it had agreed to acquire the entire share capital of Haigh-Farr Inc.

We chose the two firms from the Investegate website. The historical data, which includes the announcement date, the stock prices of the companies before and after the event, and the corresponding indexes, were obtained from Bloomberg. The recently published paper was discovered via the Factiva research tool. We used the FTSE 100 for the index.

Event period
The event period determines the number of days over which we measure the possible abnormal return caused by the event. The event window is set to 81 trading days, including the event day; 40 days before and 40 days after it.

Estimation period

The estimation period estimates the expected return of the stocks. In our event study, it is set to 200 trading days when the weekends are excluded, 41 days before the event.

An event study investigates the effect of a particular event on the stock price of a firm (the dependent variable). The key assumption of this event study methodology is that the markets are semi-strong form efficient. The methodology we used studies the changes in stock price beyond expectation (abnormal returns), over a period of time; the event period. A model based on the estimation period is used for the estimation of the required rate of return for the firm’s stock and then we obtain the errors of such model, which are abnormal returns, i.e. returns beyond what would be predicted from market movements alone.
1) Calculating abnormal returns: Using the market (index) model [or the market adjusted return model (α=0 & β=1) or the mean adjusted return model (α=R & β=0)] Rt=α+βRmt+ εt t=1,2,…, T,
Rt = Return on the stock at day t
Rmt= Return on the market index at day t α= Intercept of the regression for the stock β = Beta of the stock εt = Unsystematic/unexplained component of the regression
T= 200 trading days, 41 days before event

We obtain the abnormal return (ARt) for the stock at time t, given by:
ARt = Rt-Rt=Rt-( α+βRmt) NEED HAT

We then tested the significance of the average abnormal returns and cumulative average abnormal returns using the t-test. This standard statistic relies on the assumption that the firm’s abnormal returns are normally distributed.
e.g. Day 0:
H0=AR0=0 No significant abnormal return
H0=AR0≠0 Significant abnormal return t=AR0/SD(AR) t=AR0/SD(AR) t=AR0/SD(AR)≈N(0,1)
SD (AR)=√[∑-41, t= -240 (Art –1/200∑-41, t= -240 Art)^2]/199

2) Obtaining cumulative abnormal return over t1 to t2: Isolating the part of a stock movement that is attributable to the effects of the event is difficult as there may be information leakage and/or delayed reaction. We therefore summed all abnormal returns over the event period to obtain the CAR.
CARt1, t2=∑t=t1, t2 Art
e.g. Days-40 to +40:
H0:CAR-40,+40=0 No significant cumulative abnormal return
H0:CAR-40, +40≠0 Significant cumulative abnormal return t=CAR-40, +40/√81SD(AR)≈N(0,1)
3) For both firms together, N firms, calculate average abnormal returns, AARt and cumulative average abnormal returns,CAARt. We obtained the AAR and CAAR and continued as before, with AARt to replace ARt, and CAARt to replace CARt.
AARt=(∑i=1, N ARit)/N
CAARt1, t2= ∑t2, t=t1AARt
By using these figures calculated, we can determine whether there is an abnormal stock price effect associated with an event, and thus determine the significance of the event.
The limitations of the analysis

There are 5 main limitations in our analysis of the correlation between acquisition announcement and the stock price.

1. The fist limitation is that
Show More

Related Documents: Essay on Data and Methodology

social and cultural research Essay

research (not done by you) 4. Choose your methodologies(e.g. interview, questionnaire) 5. Collect results – relevant facts 6. Organise, Analyse, Interpret the results. 7. Evaluation of your methodologies 8. Present your findings Five primary research methodologies: Questionnaire Interview Observations Contact group Statical analysis Quantitative and quantitative data: Quantitative data- quantity (graph, can compare results) Qualitative data – Quality (can’t be graphed) Questionnaire-:…

Words 696 - Pages 3

Grounded Theory In Clinical Practice

will describe how a Grounded theory methodology could be used to answer the research question. In order to demonstrate why Grounded theory would be a suitable methodology to investigate this issue, the author will describe the background to Grounded theory, the different “schools” within the Methodology and key differences of how Grounded theory is used. Grounded theory Grounded theory can be defined as the inductive and systematic generation of theory from data (Glaser and Strauss 1967). Two sociological…

Words 1591 - Pages 7

Essay on Scientific Method and Cp 10 Research Methodology

Unit 10 CP10 Research methodology is a scientific and systematic research for relevant information on a main or specific topic. Research methodology is a systematic way to solve problem. It’s about studying how research is to be carried out. The procedures by which researchers go about their work of describing, explaining and predicting phenomena are called research methodology. Research methodology also defined as the study of methods by which knowledge is gained. Qualitative and Quantitative…

Words 335 - Pages 2

Essay about Utilizing Research

Research Process and Methodologies Study Guide Andrea Aguilar HCS/465 November 23, 2015 Jeanine Maine Research Process and Methodologies Study Guide This paper will have information in regards to research methodologies, and what style can be effective for research. I will be explaining the steps in the research process. I will summarize the difference between a hypothesis and a research question. I will be explaining the types of research methodologies. Including the types of data collection tools…

Words 1121 - Pages 5

Essay about Case Study

The three major methodologies are SDLC (system Development Life Cycle), JAD (Joint Application Development) and RAD (Rapid Application Development). Depends on situation, such as technology, economics, and organizational issues, different approaches will be appreciated. This article will analysis advantages and disadvantages of each methodologies. In addition, it gives recommendation for the given scenario, according to critical and summary analysis about the three methodologies. (Osborn, 1995)…

Words 653 - Pages 3

Essay on HCS 542 Course Notes

Quantitative Methodology In this column, you will be directed to write your research proposal draft in a Word document. Tips and suggestions will help you to move from the planning guide to writing an actual research proposal The methodology section tells in detail how you plan to tackle your research problem. It provides your work plan and describes the activities necessary for the completion of your project, and contains sufficient information for a reader to determine whether methodology is reliable…

Words 591 - Pages 3

Pros and Cons of Using a Case Study in Research Essay

Introduction Case Study Case study research is an investigation of a “bounded system” or a case or multiple cases over time through detailed, in-depth data collection involving multiple sources of information (e.g., observations, audio-visual materials, reports, etc.) (Creswell, 1998). During data collection, Yin (1989) recommended six types of data collection for case studies: 1) documentation; 2) archival records; 3) interviews; 4) direct observations; 5) participant observations; and 6) physical…

Words 2633 - Pages 11

Data Warehouse and Business Intelligence Essay

community easy access to business data”. Business Intelligence Roadmap by L. T. Moss and S. Atre, Addison Wesley. Requirements: (1) Three definitions for “Business Intelligence” with source information. Include at least one definition found from a journal article. If website resources were used, include not only the web link/address but also information such as company name, author, page title, etc. 1. “BI is an umbrella term that combines architectures, tools, data bases, applications, practices…

Words 345 - Pages 2

Introduction To Research Methodology

RESEARCH METHODOLOGY INTRODUCTION Per Merriam Webster Dictionary, research means “investigation or experimentation aimed at the discovery and interpretation of facts, revision of accepted theories or laws in the light of new facts, or practical application of such new or revised theories or laws” while methodology means “a particular procedure or set of procedures”. The combination of these two words then forms research methodology which is a set of procedure in the research to help it achieve the…

Words 969 - Pages 4

Qualitative Discussion Paper

possible. Qualitative data analysis involves the identification, examination, and interpretation of patterns and themes in textual data and determines how these patterns and themes help answer the research questions (Analyze Qualitative Data « Pell Institute, 2015). Qualitative analysis is not guided by universal rules, depending on the evaluator and the context of the study, and is likely to change and adapt as the study evolves and the data emerges (Analyze Qualitative Data « Pell Institute, 2015)…

Words 1418 - Pages 6