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Announcement-specific stock market and currency market overreaction and under-reaction
Title
Announcement-specific stock market and currency market overreaction and under-reaction.
Creator
Larson, Stephen James., Florida Atlantic University, Madura, Jeff
Abstract/Description
This study documents the nature of the underlying information that caused investor overreaction and under-reaction. While research has documented the existence of market overreaction and under-reaction, it has not comprehensively addressed the underlying information releases that caused the extreme price fluctuations. This study controls for the underlying announcements, and finds that the degrees of overreaction and under-reaction vary according to the underlying information releases. A...
Show moreThis study documents the nature of the underlying information that caused investor overreaction and under-reaction. While research has documented the existence of market overreaction and under-reaction, it has not comprehensively addressed the underlying information releases that caused the extreme price fluctuations. This study controls for the underlying announcements, and finds that the degrees of overreaction and under-reaction vary according to the underlying information releases. A primary contribution of this dissertation is the finding that undefined events are associated with higher degrees of overreaction than defined events. The Wall Street Journal Index was used to determine if each event had an announcement that coincided with it. Defined events are those for which an underlying announcement was found in the Wall Street Journal Index. For undefined events, no announcement was found. This finding supports the theory of investor overconfidence and biased self-attribution by Daniel, Hirshleifer, and Subrahmanyam (1998). This study analyzes the overreaction and under-reaction phenomenon in three areas: international securities, domestic securities, and foreign currency. The international securities analyzed are American depository receipts and international closed-end funds. The domestic securities analyzed are financial and non-financial stocks. In the foreign currency area, currencies are classified into two types: emerging country currencies and industrial country currencies. In all of these areas, controlling for the underlying announcements is beneficial in understanding market overreaction and under-reaction. Finally, cross-sectional regression equations are employed to relate post-event returns or exchange rate changes to different variables, such as initial price change, pre-event information leakage, size (market value), month of the year (December or January), day of the week, and announcement type. There is a substantial amount of evidence that suggests larger initial price movements and prevent information leakage are associated with higher degrees of overreaction, and that the tendency towards overreaction is stronger for undefined events.
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Date Issued
1998
PURL
http://purl.flvc.org/fcla/dt/12564
Subject Headings
Securities, Stock exchanges, Foreign exchange, Foreign exchange rates
Format
Document (PDF)
empirical investigation of uncovered interest parity between the United States and Japan: Cointegration and causality tests
Title
An empirical investigation of uncovered interest parity between the United States and Japan: Cointegration and causality tests.
Creator
Enyart, Russell Roy., Florida Atlantic University, Yuhn, Ky-hyang
Abstract/Description
This study investigates the existence of Uncovered Interest Parity (UIP) between the United States and Japan. The study is conducted over a 58-month period beginning in January 1994 and continuing through October 1998. This study used unit root, cointegration, and causality tests to examine whether the exchange rates and interest rates of the two countries lent support to the UIP hypothesis. All data sets were found to contain a unit root. Further, there was no evidence for cointegration...
Show moreThis study investigates the existence of Uncovered Interest Parity (UIP) between the United States and Japan. The study is conducted over a 58-month period beginning in January 1994 and continuing through October 1998. This study used unit root, cointegration, and causality tests to examine whether the exchange rates and interest rates of the two countries lent support to the UIP hypothesis. All data sets were found to contain a unit root. Further, there was no evidence for cointegration between the exchange rate and any of the explanatory variables (US interest rates, Japanese interest rates, and the interest rate differential). However, Granger-causality was discovered between the interest rate differential and the exchange rate. Thus, it can be said there is a causal relationship between the interest rate differential and the exchange rate. Lastly, this study gives some validity to the UIP hypothesis.
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Date Issued
1999
PURL
http://purl.flvc.org/fcla/dt/15648
Subject Headings
Interest rates--United States, Foreign exchange rates--United States, Interest rates--Japan, Foreign exchange rates--Japan
Format
Document (PDF)
Forecasting foreign exchange rates using neural networks
Title
Forecasting foreign exchange rates using neural networks.
Creator
Talati, Amit H., Florida Atlantic University, Pandya, Abhijit S., College of Engineering and Computer Science, Department of Computer and Electrical Engineering and Computer Science
Abstract/Description
Time series is a phenomena which appears in the financial world in various forms. One of the objectives of time series is to forecast the future based on the past. The goal of this thesis is to use foreign exchange time series, and predict its future values and trends using neural networks. The thesis covers background work in this area and discusses the results obtained by other researchers. A neural network is then developed to predict the future values of the USD/GBP and USD/DEM exchange...
Show moreTime series is a phenomena which appears in the financial world in various forms. One of the objectives of time series is to forecast the future based on the past. The goal of this thesis is to use foreign exchange time series, and predict its future values and trends using neural networks. The thesis covers background work in this area and discusses the results obtained by other researchers. A neural network is then developed to predict the future values of the USD/GBP and USD/DEM exchange rates. Both single-step and iterated multi-step predictions are considered. The performance of neural networks strongly depends on the inputs supplied. The effect of the changes in the number of inputs is also considered, and a method suggested for deciding on the optimum number. The forecasting of foreign exchange rates is a challenge because of the dynamic nature of the FOREX market and its dependencies on world events. The tool used for building the neural network and validating the approach is "Brainmaker".
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Date Issued
2000
PURL
http://purl.flvc.org/fcla/dt/12699
Subject Headings
Foreign exchange rates--Mathmematical models, Foreign exchange--Forecasting--Mathematical models, Neural networks (Computer science)
Format
Document (PDF)
relationships between exchange rate exposure and European positioning of multinational corporations
Title
The relationships between exchange rate exposure and European positioning of multinational corporations.
Creator
Martin, Anna D., Florida Atlantic University, Madura, Jeff
Abstract/Description
Exchange rate fluctuations create disparate types and degrees of exposure. Cash flows and net income fluctuate as result of exchange rate fluctuations. Consequently, shareholders, debtholders, and management closely monitor exposure. This dissertation investigates characteristics that explain the differential exposure of U.S.-based multinational corporations (MNCs) and examines conditions that influence exposure to shift over time. Operating characteristics that represent economic and...
Show moreExchange rate fluctuations create disparate types and degrees of exposure. Cash flows and net income fluctuate as result of exchange rate fluctuations. Consequently, shareholders, debtholders, and management closely monitor exposure. This dissertation investigates characteristics that explain the differential exposure of U.S.-based multinational corporations (MNCs) and examines conditions that influence exposure to shift over time. Operating characteristics that represent economic and accounting exposure are empirically studied to determine their impact on the overall exposure of MNCs. First, the results show that MNCs with imbalances in foreign currency inflows and outflows are more sensitive to exchange rate changes. A simple measure of European involvement is not adequate to assess the level of exposure. Second, it is found that the degree of export sales is a significant determinant of exposure. Third, there is strong support that accounting exposure is relevant. The translation effect on earnings is found to be significantly related to overall exposure. It is feasible that the dynamic nature of the international marketplace and MNC operations influence exposure to shift over time. First, the European Community Exchange Rate Mechanism (ERM) crisis is studied. The ERM crisis provides an opportunity to assess the effects on exposure when a tightly-controlled exchange rate regime becomes more relaxed. Using portfolio returns, U.S.-based MNCs operating in Europe experienced a positive shift in exposure, indicating returns are positively related to a strengthening dollar, following the onset of the ERM crisis. The strength of the dollar is another condition examined. Due to potential asymmetric responses, exposure may shift as the strength of the dollar changes. The asymmetric hedging hypothesis is not strongly supported while there is some support for the asymmetric competitive response hypothesis. The effects of repositioning on exposure are also studied. This analysis differs from the previous analyses of shifts in exposure since repositioning activities are predominantly under management's control. There is some evidence that exposure is a variable that continually changes as repositioning occurs. A subset of MNCs with returns that are negatively affected by a strong dollar displays time-varying exposure due to changes in their imbalance of foreign currency inflows and outflows.
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Date Issued
1995
PURL
http://purl.flvc.org/fcla/dt/12428
Subject Headings
International Business Enterprises, Foreign Exchange Rates, International Finance
Format
Document (PDF)