Essays on GSBS 6140 Investment Analysis Assignment

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OutlineI Event study Model Abnormal returns and cumulative abnormal returnsFindings in relation to market efficiency II The claim that the fund manager III WoolworthsCompany profileValuation ratiosIntrinsic ValueConclusion References List1. Event study a) In the excel file. SUMMARY OUTPUTRegression StatisticsMultiple R0.996075R Square0.992166Adjusted R Square0.988249Standard Error0.005526Observations4ANOVA dfSSMSFSignificance FRegression10.0077360.007736253.30780.003925Residual26.11E-053.05E-05Total30.007798    CoefficientsStandard Errort StatP-valueLower 95%Upper 95%Lower 95.0%Upper 95.0%Intercept0.0124580.0027764.4876260.0462390.0005130.0244020.0005130.024402AORD1.1191630.07031815.915650.0039250.8166071.4217190.8166071.421719The model is Y= 1.119AORD+0.0124The result of the traditional F-Test is a significantly high 253.307 helps reject the null hypothesis that none of the selected independent variables has power to explain the variations in the dependent variables. Deploying the F-test (p-value) delivers a similar result, in that because of the significant difference (5% > 0.393%) between the 5% hypothesis and the probable F-statistic the model has significant power to explain the changes in foreclosure rates.

In addition, the R-Square value of 99.22% shows that there exists a good fit between the independent and the dependent variables. b) It is easier to calculate abnormal return for CBA during the period of announcement. The formula for calculating abnormal return is as followsAbnormal return = observed return – expected return. Normally expected return is the average return of the stock in the market while observed return during the period of announcement.

This means abnormal return is the measure of the return that is in excess of a normal market return of a stock. This excess return is related to days relative to the announcement which will affect the market dynamics. It is considered that the day the news is released the value of abnormal return is 0.it is usually also assumed it is value is negative before their announcement and it is positive after the announcement.

The graph shown below shows the distribution of abnormal return of CBA. The graph as cumulative abnormal return begins day 10 to day -10. The graph begins with cumulative abnormal return 10 for day 10 after the announcement to cumulative -10 that is 10 days after the announcement. As it can be observed from the graph, the cumulative abnormal return was around 0 before the announcement. When the announcement was made the graph went upward then started coming down and in day 10 it was 0. This means the public had reacted to information from day0-6.

c) In this case the market appears to be semi-s strong because the information that release the market is reflected immediately in the stock price. This information affects the traders` view about the stock and they rush to buy with the hope of cashing in on the future. It is clear that the information released to market is influential to the stock price and was an expected. An expected information which as a bearing in the cumulative abnormal returns is information relating to change in dividend, change in the management and such like information.

Positive information will have a positive price change while negative information will have negative price change. In this case it appears the information positive because the cumulative abnormal return is positive. there are many reactions which include instant reaction where the new information is reflected in share price immediately. The other is when the price is reflected after some time and this is called delayed reaction. Lastly there is reaction when price shoots up abnormally and it is recollected later.

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