Stock returns are not always from the same distribution: Evidence from the Great Recession

The published financial statements are considered one of the most important sources of information that investors rely on in forecasting stock performance or even judging the organization’s ability to cover short-run liabilities. Cash flows play a core role in maintaining a high market value for its shares. Hence, this study came to analyze the explanatory value of the cash flow statement in explaining stock volatility (SV) in the Qatar financial market. Study data were collected using published financial statements from a sample of 44 Qatari-listed companies throughout 2013–2019. A panel cross-sectional data technique using the E-views program was used to analyze the data. The study results show there is a positive and significant impact of cash flows from operating CFO activities on SV, indicating that the higher change in CFO increases stock volatility. This means that operating cash flows give significant information to investors, and it is reflected in the stock price movements directly. Also, the cash flow from CFF financing activities has a positive and significant effect on SV. This means that CFF affects stock prices, causing greater changes and fluctuation in stock returns. This is because one of the major components of CFF is dividends, which affect directly stock prices and stock returns. In contrast, there is an insignificant effect of CFI on SV, which may indicate that investors do not build their investment decisions based on CFI. Accordingly, the cash flow from investing activities failed to explain the stock volatility of the listed Qatari companies.

The current study intends to empirically test a relationship between long-memory features in returns and volatility of Dhaka Stock Exchange market. As such, the study uses the ARFIMA-FIGARCH and FIPARCH structure for the daily data ranging from 15 December 2003 to July 31, 2013 of Dhaka Stock Exchange market index, i.e., DSE General Index (DGEN). The observed indication assembled from long-memory tests supports the occurrence of long memory in Bangladesh stock returns. The study aims at doing research work with long-memory data set, as it provides a superior strategy, as well as gives real picture with short-memory data set. Moreover, the backup indication for existence of long memory in both return and volatility denies the efficient market hypothesis of Fama (1970) that the future return and volatility values are unpredictable. Extra measures ought to be given for the smooth functioning of the Dhaka Stock Exchange market so that both individual and institutional investors can get congenial atmosphere to invest. Authors’ suggested that Bangladesh Bank must play vital role as share market of Bangladesh is dominated by banking shares and in case of other listed shares of the Dhaka Stock Exchange, market authority should deal with transparently and fairly so that the market can be transformed into strong efficient market. This requires suitable directives, groundwork, removing malpractices and also implementation of investors’ friendly decisions. Further, fiscal policy of the country should be pro investor friendly, as well as monetary policy should work as complementary towards investment at stock exchange market as suggested by the authors.

The Saudi Arabia Stock Exchange (Tadawul) is one of the biggest emerging Stock Exchanges in the Middle East region. Therefore, this research aims to apply Fama and French (2015) 5-factor model on Tadawul, and compares it with the Fama and French 3-factor model and CAPM to check the applicability of the models in Tadawul and the identity of the factors that can affect stock returns. Furthermore, the Generalized Method of Moments (GMM) regression has been implemented to examine the impact between the variables in the models. Empirically, the results show that Fama and French (2015) 5-factor model is the most consistent model in comparison to the other two models in terms of explaining the cross-section of average stock returns in Tadawul. However, it is not the best according to the intercepts results of all the regressions in 2x3, 2x2, or 2x2x2x2 sorts. Besides, Fama and French (2015) 5-factor model has the highest explanatory power in most of the portfolios based on the adjusted R2 regardless of the sort (2x3, 2x2, or 2x2x2x2). Finally, the results conclude that Fama and French (2015) 5-factor model can be an applicable model in Tadawul but only market and size can affect the stock returns, while the value, profitability, and investment cannot. Accordingly, the author recommends that, as a continuation of this research, further research can be done, which investigates a model with additional factors like momentum and illiquidity.