Daily abnormal returns and price effects in the “passion investments” market

The authors adopt an event study method and empirically investigate the performance of a beta momentum strategy (long in past winners of small beta and short in past losers of large beta) after extreme market movements in 20 countries. The researchers find that the beta momentum strategy yields material abnormal returns after controlling for return factors of size (SMB), book-to-market (HML) and momentum (UMD). The results are consistent for both extreme market UP days or DOWN days and regardless of whether the extreme market movements are identified by three percent or two percent cut-off points. In addition, the results based on the beta momentum strategy are more consistent than those of conventional momentum and betting against beta (BAB) strategies over different test windows from (0, +1) days to (0, +90). Finally, the abnormal returns based on momentum, BAB, and our beta momentum strategies are statistically insignificant for the Asian and Australian subsamples, whereas the results are significant for the European and North American samples.

This investigation studies the impact of mutual fund herding on the returns achieved by contrarian strategy from 1990 to 2015 in the Chinese stock market. The relationship between the profit gained by the contrarian strategy and the macroeconomic environment is also examined. First, the returns of the contrarian strategy in China’s stock market are found to be significant. Second, most loser stocks with a high degree of mutual fund herding outperform loser stocks with a low degree of mutual fund herding, revealing that the profitability of an investment portfolio depends on the degree of mutual fund herding. Third, investors should buy loser stocks with a high degree of herding and sell winner stocks with a low degree of herding during a two-year formation period, over which zero-cost contrarian strategies yield the significantly highest return. Finally, the payoff of contrarian strategies is positively related to the herding effect and negatively related to macroeconomic variables.

The unprecedented outbreak of COVID-19 has affected every aspect of the human life, be it health, social, or economic dimensions. The anxiety and uncertainty wobbled the economies of affected countries worldwide. This study attempts to quantify the impact of COVID-19 on the performance of major stock markets of G-7 nations vis-à-vis BRICS nations. An event study methodology is employed to capture the effect of the systematic event in the form of Buy and Hold Abnormal Returns (BHAR) and Average Buy and Hold Abnormal Returns (ABHAR). The study considers a 90-day observation window, consisting of six sub-event windows after the COVID-19 news up-doves the world, and 120 days prior to the selected event date to estimate average expected returns. BHAR values in the four event windows are statistically significant, covering stock markets from panic and nosedive to their correction and recovery. ABHAR values reported are significantly negative in the event window ranging from –0.15% to –38.43% for G-7 and –0.06% to –37.12% for BRICS nations. Despite similar ABHAR trends, the BHAR values and correlation matrix exhibit a diverse reaction in BRICS nations compared to the highly synchronized reaction in the G-7 group of nations in the COVID period.