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Regression analysis resultsMarket return as control variable
The only case when the values of
Industry return as control variable
If the regression controls for the industry instead, Apple and Microsoft show significant opposite effects from competitors’ stocks. 1% increase in Google and Hewlett-Packard stocks causes -0.1225% and -0.148% decrease in Apple’s share price. In addition, 1% increase in Apple’s share causes a negative change of -0.5681% in Microsoft stock price. The results are significant at 99.9% confidence level; therefore arbitrage profits can be earned. To do so, programs calculate intraday price change for Microsoft and Hewlett Packard. A positive price change triggers a short sell transaction of Apple stock, while a negative price change triggers a buy transaction. Similarly, programs calculate intraday price change for Apple stock and buy/sell Microsoft stock.
Influence on Competitors
This time, only Apple’s significant news shows significant opposite effect on its competitors. However, the magnitude of the effect is striking. A 1% increase in share price for Apple causes -0.7736% and -0.978% decrease in Google and Hewlett Packard stocks. Arbitrage profits can be earned from this information. If programs detect significant good news for Apple (or significant increase in its share price), they can short sell Google and Hewlett-Packard stocks.
Conclusion Overall, the paper succeeded in identifying companies which have Situation X-type events more commonly than Situation Y. It also partially managed to explain the competitors’ stock price reactions, with limitations. Arbitrage profits can be earned for some companies if: 1) news articles are released during the trading hours 2) the duration of price adjustment to direct news is different to the duration of adjustment to competitors’ news (beneficial, but not necessary) 3) technology industry shows low returns on the day (discussed below) 4) transaction costs are low (Apple’s significant news effect on Google and Hewlett Packard is high enough to disregard transaction costs) 5) relevant software is created, which analyses competitors’ news and intraday stock returns Hypothesis Check Date: 2015-12-17; view: 816
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