1. Find a PROFIT announcement occurring after 1 June 2014 and before 01 January 2015. The following are NOT accounting profit announcements: -Take-overs or take-over defences -Share issues/splits or bonus issues -Capital raising either debt or equity – Daily fund updates O Net asset value announcements – Analysts’ comments. Suggested sources for profit announcement: – Factiva newspaper database, accessed via Bond website: Library/Student Resources/Library & Online Resources/ Electronic Resources/Business & Commerce/Factiva. Search Australian Financial Press using key words to find relevant profit articles. (Note: this database can be tricky and you are advised to seek a librarian’s assistance). – Australian Stock Exchange site, www.asx.com.au – Current financial press, e.g., the Financial Review or The Australian. – Bloomberg – You can also find additional data on your chosen company’s website.
2. Select two competitors. (My competitors are FLIGHT CENTRE LTD And HELLOWORLD LTD) Conduct a web search if you are unsure about the competitors for your company. You could go to the ASX website (as above) and look at the various industry sectors and/or find the competitors for a company. Alternatively use www.tradingroom.com.au to look up your company and then click on “DETAILS” button on the left menu bar and click on the Industry Group to display the list of competitors for your company. Bloomberg and Aspect Find Analysis (which can be found in the library electronic resources) are also helpful.
3. Gather the following data series for each day: • Closing Share Price for your company (MY COMPANY IS CORPORATE TRAVEL) • Closing Share Price for selected competitors • All Ordinaries Market Index (All Ords). Collect the above data series for a period of three weeks both sides of the announcement and download to Excel worksheet files. Historical share prices can be accessed from http://www.tradingroom.com.au. Note: You should have a total of AT LEAST SIX WEEKS of data.
4. Calculate the returns for each company and the market (All Ords Index) as per the formula below. Note that the returns are transformed into percentages. RetDay1 = [(P1-P0)/P0]*100 and Mar RetDay1 = [(M1-M0)/M0]*100 . (If a dividend has been paid during your analysis period, use this formula instead: [(P1-P0 + D1)/P0]*100). Graph your results.
5. Calculate the cumulative residuals for each company (see Sample Spreadsheet Set Up, following): subtract the return on the market index from each company’s returns daily – the difference is the “residual”. Progressively add each day’s residuals together to determine the cumulative residuals for the six week-period under analysis. This shows each company’s stock market performance after the general stock market movements are removed. Thus the residuals and cumulative residuals should be calculated as follows: Cum ResDay 1 = RetDay1 – Mar RetDay1 Cum ResDay 2 = RetDay2 – Mar RetDay2 + Cum ResDay 1 Cum ResDay3 = RetDay3 – Mar RetDay3 + Cum ResDay2 Graph your results. If the changes you see in your company’s returns are random then the cumulative residuals should end up at about zero. If the information disclosure has an effect, the cumulative residuals should be positive or negative depending on whether the information was good news or bad news.
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