The Trading Stock Valuation Adjustment: Some Extensions and Modifications

Abstract

This paper seeks independent confirmation of the research conclusions reached by Sinclair and Whittred (1982) regarding a capital market reaction to the introduction of the Trading Stock Valuation Adjustment (TSVA). This analysiS extends and modifies that research and uses the date of the subsequent withdrawal of the TSVA to test for evidence of any reversal impact on the stock prices of the firms initially affected. We are unable to document such evidence.

A Price Reversal Test of the Market Impact of the Trading Stock Valuation Adjustment

“…Aitken and Walter (1984) re-examined the iso-beta methodology used by Sinclair and Whittred (1982) and reported no apparent aggregate price reaction at the announcement of the withdrawal of the TSVA using daily or weekly return data. However, it was noted by Larcker (1981, p.2l9) that the lack of an overall market reaction to an event does not preclude the possibility that a price reversal may have occurred.…”