This document provides a summary of an analysis of repeated firm behaviors and trend analysis related to mergers and acquisitions in the banking industry. The summary is as follows:
1) The analysis looked at 53 acquisition events among 14 American banks to determine if the market anticipated failures and if recurring acquisition events affected price changes.
2) The results showed some correlation between volume and price changes prior to events for banks with multiple acquisitions, but not for banks with single acquisitions.
3) While the market quickly adapted to new information, the study did not find clear evidence that acquisition events negatively impacted shareholders or that the market clearly anticipated failures.
Data Mining, Statistical Analysis, Clustering and segmentation, profiling, determining CLV (customer lifetime value), and validating the results and creating reports with executive summaries and provide recommendations for a given business scenario.
Data Mining, Statistical Analysis, Clustering and segmentation, profiling, determining CLV (customer lifetime value), and validating the results and creating reports with executive summaries and provide recommendations for a given business scenario.
Regulatory scrutiny has significantly increased and has prompted banks to develop complex models at the lowest level of granularity to capture the impact of economic cycles. Segmentation is one of the first steps in establishing a quantitative basis for the enterprisewide scenario analysis of stress testing.
Managers use a short-term horizon to maximize their utility function. Short-term profitability of banking institutions is one of the most important determinants of bonus packages and managers are therefore motivated to produce highest possible returns on equity by lowering equity buffers to the lowest possible level. Framing effects approach shows that managers engage into risk seeking behavior in order to avoid sure loss (thus, to guarantee that they receive higher bonus), although risk adverse behavior is a preferred choice. Lessons learned from the financial crisis are the importance of introducing behavioral finance concepts into a daily banking activities, increase information transparency, and try to find alternative measures of managers’ efficiency – measures that would stimulate setting up long-term value functions.
Behavioural Finance - An Introspection Of Investor PsychologyTrading Game Pty Ltd
Investors always try to make rational decision while analyzing and interpreting information collected from various sources for different investment avenues to arrive at an optimal investment decision. But at the same time they are influenced by various psychological factors that influence them internally and bias their investment decision. Linter (1998) studied the various factors that influence internally the informed investment decision and included them under the discipline of behavioural finance. Behavioural finance studies how people make investment decision and influenced by internal factors and bias. The main purpose of the paper is to assess impact of behavioural factors over mutual fund investment decision made by investors in Raipur city.
Bankruptcy Prediction is an art of predicting bankruptcy and various measures of financial
distress of public or private firms. In recent past days we are seeing many cases with distress
and bankrupted. It is a huge area of finance and accounting research. The importance of the
world is due partially to the relevance for creditors and investors in evaluating the likelihood
that a firm may go bankrupt. The quantity of research is additionally a function of the supply of
data: for public firms which went bankrupt or not, numerous accounting ratios which
may indicate danger can be calculated, and various other potential explanatory variables also
are available. Consequently, the world is well-suited for testing of increasingly sophisticated,
data-intensive forecasting approaches.
“Impact of Behavioral Biases on Investors Decision Making: Male Vs Female”IOSR Journals
This study aims to investigate the influence of behavioral biases on investment decisions made by students and employees. This objective was achieved by administering a questionnaire and collecting empirical data from graduate & post graduate students and employees about their own perceptions of biases. Questionnaire was distributed among the sample of hundred students/employees from which 45% were students and 55% were employees. Two statistical techniques were used to analyze collected data. Correlation was used to analyze the relationship of overconfidence bias with illusion of control bias, familiarity bias, loss aversion bias and confirmation bias. Chi-square was used to determine the significant difference between the responses of male and female about overconfidence bias. Results of this study reports weak negative correlation between overconfidence bias and other behavioral bias discussed in the study. This study concludes there is no significant difference between the responses of male and female decision making regarding overconfidence bias.
Mercer Capital's Bank Watch | January 2020 | Community Bank Valuation Part 5Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Behavioral finance, heuristics and marketing A.W. Berry
Economic and financial heuristics explain how people's money related decision making is influenced by psychology and sociological trends. This is relevant in the marketing profession and to corporate strategists because purchase decisions, stock market investing and other financial decision making is linked to consumer behavior.
Bridging the Gap between Psychology and Economics: The Role of Behavioral Fin...inventionjournals
This article is a descriptive presentation of how behavioral finance plays key role in providing insight into how individuals’ investment behavior typically deviates from traditional economic theories. The efficient market hypothesis (EMH) and capital asset pricing model (CAPM) theories have gained prominence in modern finance platform. The adequacy of these popular, rational-based behavior theories has however, remained skeptical among many scholars including Daniel Kahneman, Amos Tversky, and Richard H. Thaler. While the EMH and CAPM theories have contributed significantly to the investment world, some scholars contend the theories fail to fully explain certain inconsistent behaviors exhibited in the investment world. Behavioral finance is a new theory that attempts to fill the void between psychology and economics by providing a better understanding of investor behavior through the theories of psychology. Investment decisions are impacted by an array of irrational behavioral biases. The article identifies some finance and economic theory anomalies such as the January effect, equity premium puzzle, and others, which shift away from the traditional economic theories. Understanding these anomalies not only would assist individuals have a sense of how investors generally behave in the investment arena but also would help in efficient capital allocation.
A Study of Behavioural Factors Affecting Individual Investment Decisionsijtsrd
Although finance has been studied for thousands of years, behavioral finance which considers the human behaviour in finance is a pretty new area. Behavioral finance theories, which might be based totally at the psychology, try to apprehend how feelings and cognitive mistakes impact man or woman traders' behaviour buyers referred to on this look at are referred to person traders .The primary goal of this have a look at is exploring the behavioral factors influencing person buyers' selections on the NSE and BSE Stock Exchange. Furthermore, the members of the family among these elements and funding overall performance also are tested. The have a look at begins with the present theories in behavioral finance, based totally on which, hypotheses are proposed. Then, those hypotheses are examined via the questionnaires dispensed to individual buyers on the Broking Firms, college students and professionals. The data collected from the Stock Broking firms, Students, Professionals through structured questionnaire were examined and data collected were analyzed using Cronbachs Alpha Reliability Test, based totally on which, hypotheses are proposed. The result indicates that there are 5 behavioral elements affecting the funding selections of person investors at the NSE and BSE Stock Exchange Herding, Market, Prospect, Overconfidence gamble's fallacy, and Anchoring ability bias. Most of these elements have mild impacts whereas Market element has high affect. This test also tries to discover the correlation among these behavioral factors and investment overall performance. Among the behavioral factors referred to above, best 3 elements are located to influence the Investment Performance Herding inclusive of shopping for and promoting choice of trading shares extent of buying and selling stocks velocity of herding , Prospect such as loss aversion, remorse aversion, and mental accounting , and Heuristic inclusive of overconfidence and gamble's fallacy . The heuristic behaviors are determined to have the highest advantageous impact at the investment overall performance while the herding behaviors are stated to persuade undoubtedly the investment overall performance on the lower degree. In assessment, the possibility behaviors provide the negative impact on the funding overall performance. Pawankumar S Hallale | Manjiri Gadekar "A Study of Behavioural Factors Affecting Individual Investment Decisions" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-6 , October 2019, URL: https://www.ijtsrd.com/papers/ijtsrd28100.pdf Paper URL: https://www.ijtsrd.com/management/business-economics/28100/a-study-of-behavioural-factors-affecting-individual-investment-decisions/pawankumar-s-hallale
Regulatory scrutiny has significantly increased and has prompted banks to develop complex models at the lowest level of granularity to capture the impact of economic cycles. Segmentation is one of the first steps in establishing a quantitative basis for the enterprisewide scenario analysis of stress testing.
Managers use a short-term horizon to maximize their utility function. Short-term profitability of banking institutions is one of the most important determinants of bonus packages and managers are therefore motivated to produce highest possible returns on equity by lowering equity buffers to the lowest possible level. Framing effects approach shows that managers engage into risk seeking behavior in order to avoid sure loss (thus, to guarantee that they receive higher bonus), although risk adverse behavior is a preferred choice. Lessons learned from the financial crisis are the importance of introducing behavioral finance concepts into a daily banking activities, increase information transparency, and try to find alternative measures of managers’ efficiency – measures that would stimulate setting up long-term value functions.
Behavioural Finance - An Introspection Of Investor PsychologyTrading Game Pty Ltd
Investors always try to make rational decision while analyzing and interpreting information collected from various sources for different investment avenues to arrive at an optimal investment decision. But at the same time they are influenced by various psychological factors that influence them internally and bias their investment decision. Linter (1998) studied the various factors that influence internally the informed investment decision and included them under the discipline of behavioural finance. Behavioural finance studies how people make investment decision and influenced by internal factors and bias. The main purpose of the paper is to assess impact of behavioural factors over mutual fund investment decision made by investors in Raipur city.
Bankruptcy Prediction is an art of predicting bankruptcy and various measures of financial
distress of public or private firms. In recent past days we are seeing many cases with distress
and bankrupted. It is a huge area of finance and accounting research. The importance of the
world is due partially to the relevance for creditors and investors in evaluating the likelihood
that a firm may go bankrupt. The quantity of research is additionally a function of the supply of
data: for public firms which went bankrupt or not, numerous accounting ratios which
may indicate danger can be calculated, and various other potential explanatory variables also
are available. Consequently, the world is well-suited for testing of increasingly sophisticated,
data-intensive forecasting approaches.
“Impact of Behavioral Biases on Investors Decision Making: Male Vs Female”IOSR Journals
This study aims to investigate the influence of behavioral biases on investment decisions made by students and employees. This objective was achieved by administering a questionnaire and collecting empirical data from graduate & post graduate students and employees about their own perceptions of biases. Questionnaire was distributed among the sample of hundred students/employees from which 45% were students and 55% were employees. Two statistical techniques were used to analyze collected data. Correlation was used to analyze the relationship of overconfidence bias with illusion of control bias, familiarity bias, loss aversion bias and confirmation bias. Chi-square was used to determine the significant difference between the responses of male and female about overconfidence bias. Results of this study reports weak negative correlation between overconfidence bias and other behavioral bias discussed in the study. This study concludes there is no significant difference between the responses of male and female decision making regarding overconfidence bias.
Mercer Capital's Bank Watch | January 2020 | Community Bank Valuation Part 5Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Behavioral finance, heuristics and marketing A.W. Berry
Economic and financial heuristics explain how people's money related decision making is influenced by psychology and sociological trends. This is relevant in the marketing profession and to corporate strategists because purchase decisions, stock market investing and other financial decision making is linked to consumer behavior.
Bridging the Gap between Psychology and Economics: The Role of Behavioral Fin...inventionjournals
This article is a descriptive presentation of how behavioral finance plays key role in providing insight into how individuals’ investment behavior typically deviates from traditional economic theories. The efficient market hypothesis (EMH) and capital asset pricing model (CAPM) theories have gained prominence in modern finance platform. The adequacy of these popular, rational-based behavior theories has however, remained skeptical among many scholars including Daniel Kahneman, Amos Tversky, and Richard H. Thaler. While the EMH and CAPM theories have contributed significantly to the investment world, some scholars contend the theories fail to fully explain certain inconsistent behaviors exhibited in the investment world. Behavioral finance is a new theory that attempts to fill the void between psychology and economics by providing a better understanding of investor behavior through the theories of psychology. Investment decisions are impacted by an array of irrational behavioral biases. The article identifies some finance and economic theory anomalies such as the January effect, equity premium puzzle, and others, which shift away from the traditional economic theories. Understanding these anomalies not only would assist individuals have a sense of how investors generally behave in the investment arena but also would help in efficient capital allocation.
A Study of Behavioural Factors Affecting Individual Investment Decisionsijtsrd
Although finance has been studied for thousands of years, behavioral finance which considers the human behaviour in finance is a pretty new area. Behavioral finance theories, which might be based totally at the psychology, try to apprehend how feelings and cognitive mistakes impact man or woman traders' behaviour buyers referred to on this look at are referred to person traders .The primary goal of this have a look at is exploring the behavioral factors influencing person buyers' selections on the NSE and BSE Stock Exchange. Furthermore, the members of the family among these elements and funding overall performance also are tested. The have a look at begins with the present theories in behavioral finance, based totally on which, hypotheses are proposed. Then, those hypotheses are examined via the questionnaires dispensed to individual buyers on the Broking Firms, college students and professionals. The data collected from the Stock Broking firms, Students, Professionals through structured questionnaire were examined and data collected were analyzed using Cronbachs Alpha Reliability Test, based totally on which, hypotheses are proposed. The result indicates that there are 5 behavioral elements affecting the funding selections of person investors at the NSE and BSE Stock Exchange Herding, Market, Prospect, Overconfidence gamble's fallacy, and Anchoring ability bias. Most of these elements have mild impacts whereas Market element has high affect. This test also tries to discover the correlation among these behavioral factors and investment overall performance. Among the behavioral factors referred to above, best 3 elements are located to influence the Investment Performance Herding inclusive of shopping for and promoting choice of trading shares extent of buying and selling stocks velocity of herding , Prospect such as loss aversion, remorse aversion, and mental accounting , and Heuristic inclusive of overconfidence and gamble's fallacy . The heuristic behaviors are determined to have the highest advantageous impact at the investment overall performance while the herding behaviors are stated to persuade undoubtedly the investment overall performance on the lower degree. In assessment, the possibility behaviors provide the negative impact on the funding overall performance. Pawankumar S Hallale | Manjiri Gadekar "A Study of Behavioural Factors Affecting Individual Investment Decisions" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-6 , October 2019, URL: https://www.ijtsrd.com/papers/ijtsrd28100.pdf Paper URL: https://www.ijtsrd.com/management/business-economics/28100/a-study-of-behavioural-factors-affecting-individual-investment-decisions/pawankumar-s-hallale
Vivimos en una sociedad fuertemente condicionada por la evolución económica y el gran desarrollo tecnológico. Una sociedad en constante evolución que, cada vez más, requiere profesionales especializados capaces de adaptarse a un panorama laboral cambiante.
Este Centro de Formación ha elegido una de las áreas profesionales con mejores perspectivas de futuro, la Sanidad, y ha incorporado en su vademécum formativo una serie de cursos dirigidos a formar profesionales que actúen como personal de apoyo del colectivo sanitario. Al mismo tiempo una gran diversidad de acciones formativas para los profesionales del sector en su actualización y puesta al día en su campo de actuación.
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Reply to DiscussionsD1 navyaA bank failure is the ending of.docxchris293
Reply to Discussions
D1: navya
A bank failure is the ending of an insolvent bank by a state or federal regulator. So the only power that closes the national banks is the comptroller who has a higher power in maintaining the currency. It mainly happens when a bank fails where it is assumed by the federal deposit insurance corporation in the insures of deposits. They find a different bank to take it over because various customers will specifically like the continuation using their debit cards, online banking tools, and accounts. So bank failures are mainly often to predict because the federal deposit insurance commission will not announce a particular bank to set go under the profits. Then bank diversification is the procedure that allocates the capital in a specific way because it reduces the exposure to a particular asset or risk. Therefore, the main reason for this bank diversification is to decrease the volatility or risk by investing in various assets (Goetz, 2012).
So considering both of those banking systems can easily relate to the country's economic health by determining the better quality of the loan book of different individual books. Then for maintaining the better quality of advance bank portfolio, there is only one crucial tool where it is credit monitoring. Credit monitoring plays a vital role in protecting the bank's exposures, but it also ensures the various funds that are channeled by maintaining the right purpose. It mainly acts as the guardrail for ensuring the health of banks and countries economically to stay in the right trajectory. Then various technology solutions will be readily available in the market for helping the automated process of credit monitoring to a large extent. They can ensure the functions of credit monitoring to keep the process and objective in the method oriented (Brownbridge, 2002).
References
Brownbridge, M. (2002). Resolving Bank Failures in Uganda: Policy Lessons from Recent Bank Failures. Development Policy Review, 20(3), 279-291. doi: 10.1111/1467-7679.00171
Goetz, M. (2012). Bank Diversification, Market Structure and Bank Risk Taking: Theory and Evidence from U.S. Commercial Banks. SSRN Electronic Journal. doi: 10.2139/ssrn.2651161
Reply:
D2: pavani
Diversification helps individual institutions and makes them be benefited. But Wagner says that the systematic risk increases by the degree of diversification. Raffestin also said something about the diversification that diversification can cause risks and any number of failures also. By the above words, we can know the negative aspects or negative effects of diversification. Systematic risks are very broad and complex term. This diversification process has some of the diversification measures. The indicator of diversification is calculated from the bank’s profitability. There are various methods of diversification. Commonly Alas et al proposed method is used (Mirzaei & Kutan, 2016).
And also the weight average diversification of banks ( AWDI.
Linguists and psychologists have developed techniques to identify deceptive language and behavior. Why don’t shareholders use these same techniques to evaluate the truthfulness of management and detect financial manipulation?
John Gutfranski, CFP, AIF, CRPC & Debra White Stephens, CFP – Proactive Advis...Proactive Advisor Magazine
John Gutfranski & Debra White Stephens • Cetera Advisor Networks LLC
- Is modern portfolio theory seriously flawed? by Linda Ferentchak
- Budget deficit on track for six-year low
- Three approaches to client acquisition (Chuck Bigbie, Geneos Wealth Management)
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
Running Head CLIENT ANALYSIS1CLIENT ANALYSIS 7.docxtodd271
Running Head: CLIENT ANALYSIS 1
CLIENT ANALYSIS 7
CLIENT ANALYSIS
Ashley Robinson
Southern New Hampshire University
Client Analysis
1. Clients’ risk tolerances.
Risk tolerance refers to the appropriate blending of a client’s readiness to take a risk and their good capability to take the chance. A client’s willingness to take a risk shows the extent at which they are willing to overlook their emotional drive in their decisions regarding investment (Knechel & Salterio, 2016). The cost of the emotions in most cases prevails over the abiding profit of taking the risk. On the other hand, the capability of a client to take risk refers to independent scrutiny of the whole account of their cash currents, which integrates their liquid possessions, expenditures, reserves, and capital flows. The readiness of a client to take a chance befits more if their capability to take the risk is more significant (Shrier, 2015).
Client 1:
Ezra has a high level of risk tolerance. He says that he needs to take as much risk as possible for the reason that he is still young with a lot of dreams to achieve in the future, including an expensive wedding. Ezra is also willing to take a risk in that one of his comments is that he could lose 30-40 % of his investments if the return is adequate, which implies that he overlooks his emotions, though they cost a lot, to generate more returns in future. Also, Ezra says that he does not foresee his risk tolerance getting changed after he marries. He has the capabilities for taking risks since he receives a salary enough to cater for all his expenses and leave him with about $1000 a month. Integration of both aspects of risk tolerance makes him a risk tolerant person.
Client 2:
Jacob and Rachel are incapable of taking risks in that they earn roughly $190,000 after taxes, which does not leave them with much to save over the next six to eight years since they spend a lot with the inclusion of school fees for their four children; two in college level and two in high school. However, they are not willing to take significant risks since they are aged and they may not have enough time to recover in case of a hit in their portfolio.
2. Return objectives.
Return objectives involve the extent which a client is willing to take given some amount of projected return. It also requires an evaluation of the need for preservation of capital (Zhang, 2018).
Client 1:
Ezra is willing to take the risk of losing 30-40% of his invested capital with the aim of acquiring more profits in future. However, he likes to save some of his income in the bank to secure his future if he loses his job or something happens in his career that would affect his salary in the future.
Client 2:
Jacob and Rachel have succeeded to accrue $900,000 through their reserves and portfolio development. However, these could not sustain their needs years after their retirement. For this reason, they needed to hatch a plan of how to raise more finances to mainta.
Decision makers often face powerful incentives to increase risk-taking on behalf of others either through bonus contracts or competitive relative performance contracts. Motivated by examples from the recent financial crisis, we conduct an experimental study of risk-taking on behalf of others using a large sample with subjects from all walks of life. We find that people respond to such incentives without much apparent concern for stakeholders. Responses are heterogeneous and mitigated by personality traits. The findings suggest that lack of concern for others’ risk exposure hardly requires “financial psychopaths” in order to flourish, but is diminished by social concerns. We believe the research reported here is the first to experimentally investigate the effects of incentives on risk-taking on behalf of others, and to do so on a large scale using a random sample of the general population.
By Ola Andersson, Håkan J. Holm, Jean-Robert Tyran and Erik Wengström
To read more research articles, please visit https://www.hhs.se/site
Phylyp Wagner & Matt Quattlebaum • H. Beck
- How often should you review your investment returns? The results may surprise you by Jerry Wagner
- The most scrutinized Fed rate hike ever?
- Recent Q1 highs lacked “oomph” by Tony Dwyer
- Expanding the family business tradition (Jeff Pesta, LPL Financial)
Establishing the effectiveness of market ratios in predicting financial distr...oircjournals
Financial distress research of companies has attracted a growing attention in the recent past. This phenomenon of financial distress in public companies has been witnessed by a number of corporate failures and the increase in delisting of listed companies. This study therefore attempts determine the effectiveness of market ratios on financial distress of listed firms in Nairobi Security Exchange Market, Kenya. Liability management theory, was reviewed which provides a foundation for both liquidity ratio and financial distress. The study used a panel study is an observational study. The target population will be 62 listed companies in Nairobi Security Exchange Market as indicated in from year 2011-2015. The entire population will be used in this study. The study will use document analysis by getting panel data from listed companies in Nairobi Security Exchange Market. Panel data is a good indicator or measure of financial distress. Descriptive and inferential statistics method will be used for data analysis and interpretation. Data was presented using tables and diagrams. Hypotheses were tested at 0.05 level of significance (95% confidence level) from OLS pooled regression (fixed and random effect) which shows the relationship between the independent variable and dependent variable. The findings show that market ratio has a positive and significant effect on financial distress, (β = 0.593; p< 0.05). This study is significantly important in that it will enhance efficient management and financing of working capital can increase the operating profitability ratio.
Financial distress research of companies has attracted a growing attention in the recent past. This phenomenon of financial distress in public companies has been witnessed by a number of corporate failures and the increase in delisting of listed companies. This study therefore attempts determine the effectiveness of market ratios on financial distress of listed firms in Nairobi Security Exchange Market, Kenya. Liability management theory, was reviewed which provides a foundation for both liquidity ratio and financial distress. The study used a panel study is an observational study. The target population will be 62 listed companies in Nairobi Security Exchange Market as indicated in from year 2011-2015. The entire population will be used in this study. The study will use document analysis by getting panel data from listed companies in Nairobi Security Exchange Market. Panel data is a good indicator or measure of financial distress. Descriptive and inferential statistics method will be used for data analysis and interpretation. Data was presented using tables and diagrams. Hypotheses were tested at 0.05 level of significance (95% confidence level) from OLS pooled regression (fixed and random effect) which shows the relationship between the independent variable and dependent variable. The findings show that market ratio has a positive and significant effect on financial distress, (β = 0.593; p< 0.05). This study is significantly important in that it will enhance efficient management and financing of working capital can increase the operating profitability ratio.
Lesson 6 Discussion Forum Discussion assignments will beDioneWang844
Lesson 6 Discussion Forum :
Discussion assignments will be graded based upon the criteria and rubric specified in the Syllabus.
550 Words
For this Discussion Question, complete the following.
1. Review the two articles about bank failures and bank diversification that are found below this. Economic history assures us that the health of the banking industry is directly related to the health of the economy. Moreover, recessions, when combined with banking crisis, will result in longer and deeper recessions versus recessions that do occur with a healthy banking industry.
2. Locate two JOURNAL articles which discuss this topic further. You need to focus on the Abstract, Introduction, Results, and Conclusion. For our purposes, you are not expected to fully understand the Data and Methodology.
3. Summarize these journal articles. Please use your own words. No copy-and-paste. Cite your sources.
Please post (in APA format) your article citation.
Reply to Post 1: 160 words and Reference
Discussion on Bank’s failures and its diversification
Over the last two decades, business cycle volatility has decreased in the US. For example, some analysts claimed that companies handle inventory better today than ever, or that advances in financial systems have helped smooth industry volatility. Some emphasized stronger economic policy. Banking changes were also drastic in this same era, contributing to the restructuring and convergence of massive, global banking institutions in a better-organized structure. The article (Strahan, 2006) points out that some regulatory reform driven by individual countries rendered it possible for banks to preserve their resources and income by gradually diversifying from local downturns. Both low state volatility rates and a decline in partnerships between the local market and the central banking sector is a net influence on the diversification in banks. Considering the less fragile state economies following these intergovernmental financial reforms, there are some signs that financial convergence – while certainly not the only piece of the puzzle – has been less unpredictable.
Another article (Walter, 2005) argues that a long-standing reason for bank collapses during the crisis is a contagion, which contributes to systemic bank failures and the collapse of one bank initially. This indicates why several losses in the crisis period were unintentional, which ensured that the banks remained stable and endured without contagion-induced falls. The response to the contagion was the central government’s deposit policy, bringing an end to defaults. Nevertheless, since the sequence of errors began in the early 1920s, well before contagion was evident, the underlying trigger must be contagion.
Now it seems like the bank sector has undergone a shake-out that was worsened during the crisis by the deteriorating economic conditions. Although the reality that incidents occurred almost syno ...
Similar to MailletteTeall_Project2_event_analyzer (20)
Lesson 6 Discussion Forum Discussion assignments will be
MailletteTeall_Project2_event_analyzer
1. Analysis of Repeated Firm Behaviors and Trend Analysis
Project 3
Nicole Maillette
PhD Candidate
Professor John Teall
International School of Management (Paris)
December, 2015
2. 1.0 INTRODUCTION
Neuro-finance is a science that studies risk taking habits. This field of research includes
investigations on patterns of recognition that are associated to risk-taking habits. Therefore the study of
trader's personality can help researchers correlate professional behaviors to risk taking or risk aversion.
Since risk taking is often correlated with a person's confidence in their own ability to deal with
financial issues; Glaser, Langer and Weber (2007) have studied investors' capacity to recognize
temporary trends that are correlated with risk aversion. During a within-subject design experiment
which tested probability estimation and quantile intervals; they find both types of trading behaviors.
Traders either displayed over and/or under-confident traits. They also stated that under-confidence in
trend recognition became more pronounced when using longer price history. Nevertheless most traders
had various degrees of overconfidence when trading in shorter time periods. Another important point
that was made is the fact that when they looked at the level of trading experience each subject
possessed; they found that professional traders displayed a higher number of overconfidence traits than
students. These results reenforced an earlier study conducted by Badescu and Du (2007).
Nevertheless the major finding in Glaser, Langer and Weber's (2007) research is the fact that
over or under-confident behaviors did not increase or decrease a person's capacity to see financial
trends.
Further research conducted by Bhandari and Deaves (2006) graphed demographics of
overconfidence. They stated that people fail to learn from past mistakes because they are overconfident
about their ability to recognize situations and patterns. In particular they found that gender and
education are consistently associated to overconfidence (x>=5%). According to this study, men do not
generally have more knowledge than women over short term investments. Furthermore educated
people do not know more about investment trends than experienced self-investors. The major
difference between the latter group is the fact that investing knowledge is what differentiate financial
successes. Therefore if educated and experienced investors acquire ongoing information regarding
future securities at a price time; their ability to foresee a “good deal” should be seen in their investing
actions.
The following analysis is based on the fact that the financial market should therefore reflect
investor's over or under-confidence in their capacity to recognize trends by generating price patterns
prior to certain announcements. The industry chosen for this study is the Banking industry because
money affects every person in the world and successful Banks are positively correlated with higher
price returns.
3. 2.0 METHODOLOGY
Chart #1 shows that the following analysis inputted fifty-three (53) acquisition events related to
fourteen (14) American Banks in order to answer the following questions:
1. The market appropriately anticipated the failure announcement and adjusted share prices accordingly
prior to the announcement.
2. The market quickly adapted to any additional information learned from the announcement.
3. The failure announcement was detrimental to acquirers' shareholders.
4. Are recurring events in regard to new acquisitions affect price changes. In particular does the
market react faster to the announcement that a Bank is again merging or acquiring another failed Bank.
Chart #1 Bank names and event number
Source: FDICWebsite as of Oct 02nd
2015 http://www.fdic.gov/bank/individual/failed/banklist.html
4. A list of failed Banks was obtained from the Federal Deposit Insurance Corporation (FDIC) in which
fifteen acquiring Banks were chosen. Each Bank is associated to one or two of the four factors having
the following properties:
a. One of the Banks had to have had more than 10 events listed (X = 10; Heritage Bank Group)
b. Some of the Banks had to have had only one event listed (X = 2,5,6,9,12,13,14)
c. Some of the Banks had to have had acquired other Banks and had to have been acquired by
another larger Bank (X = 3,10).
d. Some Banks had to have more than one event and less 10 events (X = 1,3,4,7,8,11,15)
The present study did not take into consideration the acquired or acquiring Bank size. Instead it looks at
the amount of acquisitions associated to an event that each Bank has made.
The purpose behind this principle is to find out if a pattern of acquisitions by one Bank affect a
trader's behavior by either increasing or decreasing the same Bank stock price. Trader's behaviors
would be recognized through the forming of similar trends prior to any new acquisitions.
Questions #1 and #4 would then be answered by testing the following hypothesis:
H1 states that trader's behavior is associated to price changes while H0 states that price changes
which affects shareholders' returns is not significant enough to be associated to trader's prior knowledge
of a specific event.
H1=traders' behavior is seen in market price change trends
H0=trader's behavior does not affect market prices
Bordino et al (2012) graphed trading behaviors by inputting volume trades and adjusted
close price prior to a specific event in time. They state in their paper that past studies have
demonstrated that volume shifts can be correlated with price movements. Furthermore they have found
out that volume queries is correlated with volume of transactions (Bordino et al, 2012, page 1).
According to this finding the above study takes the stand that an unusually large change in volume
prior to a merger should be an indication that traders may have had insiders information or have had
enough knowledge to find trends and are acting accordingly (Bordino et al, 2012). Therefore a Bank
that is continually acquiring other Banks should have a noticeable change in sales volume within three
days of the merger.
Dickerson, Gibson, and Tsakalotos (1998) paper on Takeover Risk and Dividend Strategy: A
study of UK Firms confirms that the effect of dividend payments can be employed to reduce takeovers.
Dividends payments has therefore a significant impact on keeping the loyalty of a firm shareholders.
5. The experimental group is formed by the Banks that have more than one acquisition (Group A =
1,3,4,7,8,10,11,15) while the control group is formed by the Banks which only has one known event
(Group B = 2,5,6,9,12,13,14) at the time of the study. Two independent variables were chosen to
determine if Group A is responding to external influences. It is assumed that volume of sales and
dividend payments have some impact on price changes. Moreover it is therefore believed that the more
acquisitions a Bank makes; the more patterns are formed which leads to significant price changes prior
to a specific event.
A two-way ANOVA analysis between group A and B and within group will demonstrate if a co-
dependence exists when Banks continuously acquire other Banks. A within group assessment in
particular in Group A should demonstrate that traders are more confident in their assessment when a
Bank mergers or acquires other institutions on a regular basis.
3.0 ANALYSIS
A first look at six (6) variables shows some correlation between the number of time a Bank
acquires or merges with another Bank. Overtime a higher number of occurrences is noted within
Group analysis.
Graph # 1
Source: Excell Calculations using recorded data from FDIC (2015)
Heritage Bank Groups (x=12 acquiring, x=1 acquired), Ameris Bank (x=8), Bank of Ozarks (x=7) and
Bear Stearn (x=8) are the four banks which have the most mergers and acquisitions from 2006 until
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
Group A: Multiple Mergers and Acquisitions/Bank affects
Event Analysis
3 days prior Volume change
3 days after volume change
DAY OF ANNOUNCEMENT
3 days prior Dividend paid
3days prior Price change more
than 50%
6. 2012). Graph #1 shows a change in share volumes three (3) days prior to the announcement; but there
is no noticeable price change for neither. Therefore Bordino et al. (2012) volume shift prior to an
announcement could indicate that a repeated financial behavior is correlated with a higher degree of
confidence in trader's decision to purchase or sell.
Graph #2
Source: Excell Calculations using recorded data from FDIC (2015)
When Graph #1 is compared to Graph #2 which shows no correlation between price and
volume changes prior to any event; the between Group analysis indicates that Group A possesses a
higher degree of correlation between its variables than what is demonstrated in Group B.
An ANOVA two-factor analysis was conducted between Group A and B since three conditions
were included in the test. Condition 1 included a change in volume three (3) days prior to the event,
Condition 2 included a price change three (3) days prior to the event while the last Condition 3
included the distribution of dividends three (3) days prior to the event. Nevertheless a further look at
Graph #1 shows that Firstmerit Bank did not have enough Mergers or Acquisitions to affect traders'
behaviors. Therefore Firstmerit Bank was eliminated from Group A.
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
Group B: 1st Know Merger or Acquisition /Bank affects
Event Analysis
3 days prior Volume change
3 days after volume change
DAY OF ANNOUNCEMENT
3 days prior Dividend paid
3days prior Price change more
than 50%
7. Chart #2 Between and Within Group A and B Volume changes
Source: Excell ANOVA analysis
Chart #2 indicates no significant difference (p=0.998) between Group A and B. Regardless of
dividend payments prior to an event, Group A and B do not differ in price and volume changes. This
result indicates that the market was not affected prior to any acquisition or merger announcement.
However there exists some effect between variables within a group F(2,3)=0.46, p=0.68.
Therefore a covariance study was conducted within Group A and Group B.
Chart #3 Correlation analysis between 3 variables in Group A
Source: Excell Correlation analysis
Chart #3 shows some correlation between a volume change and a price change three days prior
to an event for Group A (Cor = 0.44). Since Group A includes Banks with repeating behaviors, this
result would indicate that some trend is being noted by traders and they would act accordingly.
Alpha 0.05
Groups Count Sum Mean Variance
Group A 3 0.8583 0.2861 0.06139884
Group B 3 0.8571 0.2857 0.02042041
3 days prior vol 2 0.8308 0.4154 0.03364418
3 days div 2 0.4799 0.23995 0.071177645
3 days price change 2 0.4047 0.20235 0.007092405
Source of Variation SS df MS F P-value F critical
Within Group 0.05172451 2 0.025862255 0.4621809123 0.683909899 19
Between Groups 0.00000024 1 0.00000024 0.000004289 0.9985355891 18.512820513
Error 0.11191399 2 0.055956995
Total 0.16363874 5
ANOVA - Two Factor
Correlations 3 days vol 3 days div 3 days price
3 days vol 1
3 days div 0.2900323714 1
3 days price 0.4447507217 0.0518978328 1
8. Chart #4 Correlation analysis between 3 variables in Group B
Source: Excell Correlation analysis
A further look at Group B also indicate that a first time acquirer would not show any patterns
of purchase of sale. Chart #4 indicate no significant correlation between all three variables.
4.0 CONCLUSION
Two hypothesis were proposed in order to answer four (4) questions:
H1=traders' behavior is seen in market price change trends
H0=trader's behavior does not affect market prices
A Two-factor ANOVA study demonstrated that H0 the null hypothesis is correct and that trader's
behaviors do not affect market prices; but as long as Banks are not repeated acquirers or mergers.
Has the market therefore appropriately anticipated the failure announcement and adjusted share
prices accordingly prior to the announcement?
Graph #1 showed a marked increase in volume during and three (3) days after the event for
Group A (multiple acquisitions/mergers). Added to the correlation analysis of Group A, price changes
did occur but was not significant enough to state if the market appropriately anticipated a failure
announcement.
This paper did not further study if there was an increase or decrease in price prior or after the event. It
only looked at price and volume changes prior and after an acquisition or a merger.
On the other hand, the market did quickly adapt to any additional information learned from
prior behaviors. Even though the two-factor ANOVA analysis was not significant, the results in Chart
#3 and Chart #4 indicated that some variables could be correlated and could affect the behaviors of
traders.
Further study using linear regression in price changes should be conducted in a separate study
in order to show that an acquisition or merger event was detrimental to acquirers' shareholders. The
present study did not find any evidence of a negative effect on either Group A or Group B.
Nevertheless this study only looked at three days prior and after the event. Which means that any
linear regression would have been inadequate to show trend formation.
However, this study demonstrated that recurring events in regard to new acquisitions affect
Correlations 3 days vol 3 days div 3 days price
3 days vol 1
3 days div 0.0912870929 1
3 days price -0.25819889 -0.353553391 1
9. price changes. It appears that trend formation may be associated to repeating behaviors. Volume and
price changes are somewhat correlated. Group A which includes Banks which have acquired other
Banks eigth (8) times or more may have some impact on trend forming in the market.
A further look at Group A should be conducted in order to demonstrate that the Market may or
may not be efficient. As per previous paper long-term study may show trend formation, but this paper
only looked at a three (3) day short-term period.
This paper has therefore showed that the Market is efficient as long as a behavior is not repeated
over a long period of time.
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