Post by ehsanulh125 on Jan 9, 2024 11:58:09 GMT 5
On June 24, after the market closed, the American video card manufacturing giant NVIDIA published its quick report, in which they expected revenue for the second quarter that exceeded previous expectations. As a result of this, a significant increase in the exchange rate was observed in the following day(s), some news put the price increase caused by the announcement at nearly 25 percent. In the framework of this blog post, we briefly highlight the application of the event study methodology, in which we examine the impact of NVIDIA's quick report on returns. Event analysis has three main steps, two of which we will review now. The first is the selection of the event, which in our case is obvious.
The second is the calculation Buy Bulk SMS Service of so-called abnormal returns. Within this framework, we determine the so-called normal returns, i.e. what would have happened if there was no notification, and then we quantify the excess/abnormal returns caused by the event as a function of the normal returns. In our case, we determine the normal return based on the so-called market model, i.e. the CAPM, whose coefficient is estimated based on the 250 days before the event. Here, market return is taken as the average return of Tech sector stocks available in Datastream. Based on the estimated normal returns, the statement that NVIDIA realized a return of nearly 25 percent seems true, since according to our simple model, the quick report generated an additional return of 23.4 percent, compared to what would have been expected on this day based on previous trends.
Another interesting thing is that as a result of the announcement, in addition to NVIDIA, the big competitor AMD and other players in the IT infrastructure also generated an abnormal return of over 10 percent. Development of cumulative abnormal returns around the release of NVIDIA's flash report Source: Datastream, Own edit In addition to one-day abnormal returns, it is worth examining multi-day, so-called cumulative abnormal returns (CAR). As can be seen in the figure, the abnormal returns of many companies reacted to the quick report by leaps and bounds, and in the case of some companies, an increase similar to the post-earnings drift (PEAD) can be observed. On a cursory examination, we could even say that those investors whose portfolios consisted primarily of such companies could realize an additional return of 20-60 percent over the course of 20 days, primarily thanks to NVIDIA's quick report. Of course, this is not the case.
The second is the calculation Buy Bulk SMS Service of so-called abnormal returns. Within this framework, we determine the so-called normal returns, i.e. what would have happened if there was no notification, and then we quantify the excess/abnormal returns caused by the event as a function of the normal returns. In our case, we determine the normal return based on the so-called market model, i.e. the CAPM, whose coefficient is estimated based on the 250 days before the event. Here, market return is taken as the average return of Tech sector stocks available in Datastream. Based on the estimated normal returns, the statement that NVIDIA realized a return of nearly 25 percent seems true, since according to our simple model, the quick report generated an additional return of 23.4 percent, compared to what would have been expected on this day based on previous trends.
Another interesting thing is that as a result of the announcement, in addition to NVIDIA, the big competitor AMD and other players in the IT infrastructure also generated an abnormal return of over 10 percent. Development of cumulative abnormal returns around the release of NVIDIA's flash report Source: Datastream, Own edit In addition to one-day abnormal returns, it is worth examining multi-day, so-called cumulative abnormal returns (CAR). As can be seen in the figure, the abnormal returns of many companies reacted to the quick report by leaps and bounds, and in the case of some companies, an increase similar to the post-earnings drift (PEAD) can be observed. On a cursory examination, we could even say that those investors whose portfolios consisted primarily of such companies could realize an additional return of 20-60 percent over the course of 20 days, primarily thanks to NVIDIA's quick report. Of course, this is not the case.