Stock Market Participation After Accounting Scandal Analysis
Explore investor behavior post-accounting scandal, revealing how panic selling and buying can both be responses to market events. Considerations include direct exposure impact, rationality over time, and the role of individual portfolios in decision-making.
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Presentation Transcript
Stock Market Participation in the Aftermath of an Accounting Scandal Renuka Sane Discussant: Vijaya B Marisetty
Investor behavior Asymmetric weights: Negative Vs Positive Direct (Personal) exposure Vs. Indirect exposure.
What is the main story Such behavioral bias is short lived. Investors eventually become rational after some overreaction
How the story is verified After the announcement of Satyam accounting scandal, investors who have direct exposure to Satyam stock sell initially and buy back within one month (compared to a control group of investors). Hence, behavioral bias is short lived after all investors are rational!
Whats wrong with the conclusion? I was holding Satyam (purchased at Rs. 315) (Treatment group) My wife, who has similar size portfolio as mine, didn t have any exposure on Satyam. (control group) Once the scandal broke, I BOUGHT more Satyam, in an attempt to reduce my overall loss, and mainly due to PANIC and over weighing my personal exposure. I also influenced my wife to BUY more Satyam! He too BOUGHT!
In summary.. Selling alone doesn t represent panic.. Buying can also represent the same! Some minor comments: What happened in futures market? Why institutional investors not considers? It is good idea to report portfolio standard deviations than beta as they are individual portfolios.
