Market reactions to changes in the Dow Jones industrial average index

Biktimirov, Ernest N.; Xu, Yuanbin

doi:10.1108/ijmf-10-2017-0226

Cited by 16 publications

(19 citation statements)

References 53 publications

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“…The results of an event study may be influenced by the method of abnormal return calculation (Afego, 2017; Biktimirov and Xu, 2019). To ensure our results are not driven by this possibility, we replicate the analysis presented in Tables 2–4 by using the market model to calculate ARs and CARs [12].…”

Section: Resultsmentioning

confidence: 99%

How do markets react to political elections during periods of insecurity and governance crises? Evidence from an African emerging democracy

Afego

Abdullahi²,

Tijjani

et al. 2022

AJEMS

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PurposeThis paper operationalizes insecurity and governance crises to study their effects on stock market response to two political events in Nigeria – the 2015 and 2019 presidential elections.Design/methodology/approachAn event study was used to capture the market responses. Abnormal returns at the aggregate and sectoral levels were measured over several time windows before and after the respective election results were announced.FindingsThe market reacted strongly positively to a change in presidency from an incumbent to an opposition party candidate in the 2015 election but weakly positively, at best, to the re-election of the incumbent candidate in the 2019 election. In addition, banking stocks exhibited greater sensitivity to these events than oil and gas stocks.Research limitations/implicationsThere may be peculiarities with the Nigerian case and with the two elections analyzed. Therefore, future research could focus on understanding the extent to which the results generalize to the broader sub-Saharan context and other regions that face similar governance challenges.Practical implicationsUnderstanding that markets may have a different perception towards incumbent versus opposition candidate electoral victories during periods of insecurity and governance crisis is important for investors, policymakers, researchers and the wider society.Originality/valuePast empirical studies on political events and stock returns in Sub-Saharan Africa contexts such as Nigeria ignore shifts in voter mood and produce contradictory findings. This paper helps to resolve some of these contradictions by providing insight into how the markets can have a different perception towards incumbent and opposition candidate electoral victories during periods of insecurity and governance crisis.

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Section: Resultsmentioning

confidence: 99%

How do markets react to political elections during periods of insecurity and governance crises? Evidence from an African emerging democracy

Afego

Abdullahi²,

Tijjani

et al. 2022

AJEMS

View full text Add to dashboard Cite

show abstract

“…An event-studies examines abnormal returns defined as the difference between the expected and actual returns at the time of the event. The methodology has been previously used in numerous studies including, e.g., Barabanov et al (2007), Watson and Funck (2012), Karafiath IJMF 17,2 (2014), Pukthuanthong et al (2014), Roszkowski and Richie (2016), Biktimirov and Durrani (2017), and Biktimirov and Xu (2019).…”

Section: Methodology 41 Event Studymentioning

confidence: 99%

Social media posts and stock returns: The Trump factor

Ajjoub

Walker

Zhao

2020

IJMF

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PurposeThis paper explores the effects of US President Donald Trump's Twitter messages (tweets) on the stock prices of media and non-media companies.Design/methodology/approachThe authors’ empirical analysis considers all Twitter messages posted by Donald Trump from May 26, 2016 (the date he passed the threshold of 1,237 delegates required to guarantee his presidential nomination) to August 30, 2018. The authors accessed President Trump's tweets through http://www.trumptwitterarchive.com, which provides links to all Twitter messages the President has ever posted. Of the 6,983 presidential tweets during our sample period, the authors select 513 messages that mention companies that are publicly traded in the United States for this study. The selected messages are then classified as having a positive, neutral or negative sentiment. The authors employ a series of univariate and multivariate tests as well as Heckman two-step regressions and partial least squares regressions to examine the effect of the President's tweets on the stock prices of the firms he tweets about.FindingsFor media firms, the authors find that positive tweets have a pronounced positive stock price impact, whereas negative and neutral tweets have little or no effect. For non-media firms, the authors observe the opposite: negative tweets tend to be associated with significant stock price declines, whereas neutral and positive tweets incur weakly positive stock price reactions. To a large extent, these stock price declines reverse on the following day. The authors further find that the President's reiteration of information that is already known by the market incurs an additional stock price reaction. The President's attitude towards the news appears to play a major role in this context.Originality/valueThe authors contribute to the literature by offering various new insights regarding the effect social media has on the stock markets. In addition, this paper expands the emerging strand of literature that explores how President Trump affects the stock prices of firms he tweets about. This paper differs from prior studies in this area by considering a broader range of tweets, by controlling for potential selection biases, by differentiating between Trump's tweets about media and non-media firms and by exploring the impact of “old” vs “new” news based on whether the President repeats information that is already known to the market. If social media posts by single influential people are found to affect markets, they may create trading opportunities for investors and financial managers and risk arbitrage opportunities for arbitrageurs. In the political science field, the findings of this research provide valuable insights into how politicians can employ social media platforms to affect the public, and the differential influence of nominees and politicians in office. Finally, our study gives corporations that wish to back a certain campaign or a candidate in an election a better idea of the possible risks and benefits of their actions, considering that candidates or politicians could post negative messages on social media platforms targeting companies that backed their opponents.

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“…A price decline associated with reduced liquidity would be expected for firms removed from the DJIA. Biktimirov and Xu (2019) Several studies examine various components of the S&P index and market reaction upon index addition/deletion. Lamoureux and Wansley (1987), Harris and Gurel (1986) and Pruitt and Wei (1989) are among those that report significant wealth effects upon S&P inclusion and price declines following removal from the S&P index [1].…”

Section: Theories Related To Performance and Index Inclusionmentioning

confidence: 99%

Changes in the DJIA: market reactions and economic cycles

Ryan

Villupuram

2023

RAF

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Purpose The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary periods, explain the difference in findings. Design/methodology/approach The authors examine changes in the Dow Jones Industrial Average (DJIA) from 1929 to 2019 to evaluate immediate and long-term market reactions after a component change. Using multiple event-study methodologies, the authors examine the full era, the pre- and post-exchange traded fund (ETF) windows and economic cycles using both pre and post-estimation windows. Findings In aggregate, DJIA additions do not present an increase in wealth; however, wealth effects are positive during expansions and negative during recessions. Deletions have a negative wealth effect. The authors find weak evidence of an indexing effect. Additions are positive post-1998, and deletions remain negative regardless of era. In the long run, firms added to the DJIA have positive abnormal returns in the second year after inclusion. Deletions in recessionary times have negative returns three years after removal, a signal of longer-term wealth decline for these firms. Research limitations/implications The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors. Practical implications The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors. Originality/value Prior literature presents limited time series of data points and mixed results and implications. The authors find that the economic cycle is a driving factor that supports predicted signs and amounts of wealth change. Furthermore, the authors see limited ETF impact on DJIA changes and some impact of the choice of estimation period.

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Market reactions to changes in the Dow Jones industrial average index

Cited by 16 publications

References 53 publications

How do markets react to political elections during periods of insecurity and governance crises? Evidence from an African emerging democracy

How do markets react to political elections during periods of insecurity and governance crises? Evidence from an African emerging democracy

Social media posts and stock returns: The Trump factor

Changes in the DJIA: market reactions and economic cycles

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