Evaluation of corporate actions using factor models

• Main Author: Rukin, Jevgenij
• Other Authors: Gruening, Patrick
• Format: Master Thesis
• Language: Lithuanian; English
• Published: Institutional Repository of Vilnius University 2017
• Subjects: corporate actions; factor models; stocks; esminiai įvykiai; faktoriniai modeliai; Iceland
• Online Access: http://vu.lvb.lt/VU:ELABAETD36087875&prefLang=en_US

The study provides a thorough overview of corporate action types, objectives and risks. It sets the hypothesis that the number of conducted unique corporate actions by a company have an influence on its stock returns over a certain time interval. The analysis is based on public companies listed in the Nordic region and Baltic States excluding Iceland. All corporate action data on these equities over the same timeframe is recorded and matched against adjusted total returns for quarterly, semi-annual and annual time intervals during the period of ten years. The corporate actions factor AMP (‘Active Minus Passive’) is calculated by the same principle as the size SMB, value HML and momentum UMD factors. Subsequently, the AMP factor is used as an extension to the Capital Asset Pricing Model, the Fama and French (1993) three factor model and the Carhart (1997) four factor model in a set of linear regressions, followed by the Fama and MacBeth (1973) second cross-sectional regression. The results show that the AMP factor is statistically significant for the market-based portfolios as well as Consumer and Industrials over the semi-annual intervals, while the second stage cross-sectional regression does not derive any meaningful risk premiums for selecting more corporate active companies over corporate passive.