|
Multivariate Regression:
A Tool for Forecasting Stock Prices
-- R W Rebello and Y V Reddy
This paper examines and analyzes the use of Multivariate Regression Analysis (MRA) as a forecasting tool.
The authors attempt to test the capability of the multivariate regression model to forecast the prices of stocks
classified as `A-Group' by the Bombay Stock Exchange (BSE). Researchers in the past have applied numerous variables
to forecast stock prices; the authors in this study use three variables, namely stock price, operating cash flow and
risk-free rate of interest. The results of the study are encouraging and the average variation of 173 stocks is less
than 4%. The findings suggest that stock markets do not follow a random walk and there exists a possibility of
forecasting stock prices by using operating cash flows and risk-free rate of returns. The authors opine that it is possible
to capture nonlinearities contained in the stock prices by using MRA. If MRA is used judiciously, it is possible
to forecast stock prices fairly well and this could bring transparency in stock trading and benefit the investors.
© 2010 IUP. All Rights Reserved.
Accounting Numbers as a Predictor
of Stock Returns: A Case Study
of NSE Nifty
-- Simranjeet Sandhar
In order to survive and grow in the global economy, it is necessary to know the factors affecting the capital
market. This study is carried out to see how this phenomenon is taking place in India. It is an attempt to predict
investors' return through company financial analysis. Company analysis is the last leg in the economy, industry,
company analysis sequence, which interprets a company's past and present financial health and predicts its future
condition. The study findings indicate that the ratios are not the best predictors to choose a company in a portfolio or
for investing in a particular company, as the profitability of the company can be affected by several other factors.
© 2010 IUP. All Rights Reserved.
Effects of Multinational Mergers and
Acquisitions on Shareholders' Wealth and Corporate Performance
-- Anita Shukla and Mouni Geoffrey Gekara
In today's globalized economy, Mergers and Acquisitions (M&A) are being increasingly used the world over
for improving the competitiveness of companies through gaining greater market share, broadening the portfolio
to reduce business risk for entering new markets and geographies, capitalizing on economies of scale, etc. This
research is aimed at studying the impact of mergers on the operating performance of the acquiring firm by examining
pre-merger and post-merger financial ratios. It also examines the behavior of share prices 20 days before and after
the merger of Tata Steel with Corus Steel. Researches on share price performance so far suggest that the acquiring
firm generally earns positive returns prior to the announcement day, but less than market portfolio in the
post-merger period. The result of this study fails to support our hypothesis that merger gains are captured at the beginning
of a merger program. It is found that stockholders suffer loss for different window periods around the
announcement period. The study begins with theories of M&A, a brief history of the sample units, the significance of the
study, the study objectives, and the methodology followed. Next, it analyzes pre-merger and post-merger
operating performance, and discusses the literature on share price, the models used for the analysis, and the results on
share prices. Finally, it tests our hypothesis by using paired T-test, before drawing conclusions.
© 2010 IUP. All Rights Reserved.
The Relationship Between Fair Values
in Banks' Trading Books and Volatility
in Share Price Returns
in the Indian Context
-- Tanupa Chakraborty
`Fair value' of an asset or a liability refers to the amount at which such
an asset could be exchanged, or the liability settled, between knowledgeable, willing
parties, in an arm's length transaction. Although the growing irrelevance
of historical cost-based accounting numbers in the financial statements, in the wake of developments in financial
markets and advancements in technology, has triggered off the debate on fair value accounting a decade and a half ago,
some issues still stand in the way of extensive application of fair value accounting framework. One such issue is the
excessive level of volatility in the financial statements induced by fair valuations and its resultant impact on
the flight of capital from the firm's equity. In accordance with the series of guidelines issued by the Reserve Bank of India between
1995-2000, fair value accounting has been applied only on the `held for trading' securities in banks' investment
portfolio in India till today. Accordingly, this research paper makes a modest attempt to examine whether fair valuations
in banks' trading books bring about an increased volatility in banks' stock returns over the time period 1994-1995
to 2007-2008, using a sample of Indian banks and bank index, i.e., BSE BANKEX, and autoregressive and multiple
linear regression techniques.
© 2010 IUP. All Rights Reserved.
An Analysis of the Explanatory Paragraphs of Auditors' Going-Concern Reports and Footnotes
of Bankrupt Companies Under SAS No. 59
-- Michael Maingot and Daniel Zeghal
This paper has two main objectives. The first is to analyze the explanatory paragraphs of the audit opinions
and footnotes to the financial statements of 112 US bankrupt companies under SAS No. 59 for the years 2001,
2002 and 2003. The other objective is to present the Going-Concern (GC) conditions and events that were
identified under the four categories suggested by SAS No. 59. The sample consists of 36 construction companies and
76 manufacturing companies. The results indicate that the companies in the Non-GC (NGC) group seem to be in
a better financial position than the GC group. In terms of timeliness of the audit reports, the GC group comes
out better. Also, the GC group discloses more GC conditions and events than the NGC group. Eighty-two
companies (73.21%) received a GC opinion while 30 companies (26.79%) received a NGC audit opinion.
Seventy-four companies (66.07%) remain active while 38 companies (33.93%) remain inactive. The results suggest that
auditors follow the guidelines of SAS No. 59 more closely when issuing a GC opinion.
© 2010 IUP. All Rights Reserved.
|
