Abstract
We investigate the effect of the news announcement of the Lehman Brothers’ (LBs) bankruptcy on the performance of Shanghai Stock Exchange (SSE) sectors. Unlike the assumption in the literature that firms are homogenous, we address the unknown issue: Does LBs’ bankruptcy have a heterogeneous effect on stock returns of sectors listed on SSE? We find statistically insignificant effect of LBs’ bankruptcy on the performance of energy and financial sectors while most of the other sectors suffered significantly. Thus, our results highlight the heterogeneous effect of LBs’ bankruptcy on different sectors and at different time intervals surrounding the event.
Notes
1. The investigation was done from −2 to +2 days from LBs’ bankruptcy.
2. Representation of the other nine Chinese sectors is as follows: industrials and energy, 15 percent per sector; materials and consumer discretionary, 8 percent per sector; consumer staples, 4 percent; utilities, health care, and information technology, 3 percent per sector; and telecommunication services, 1 percent.
3. Raddatz (Citation2010) examines the effect of LBs’ bankruptcy on stock price returns of 662 individual banks across China and forty-three other countries, excluding the United States.
4. Specific details are available upon request.
5. We excluded the telecommunication services sector because there were only two firms that belonged to this sector.
6. Event study was introduced in the late 1960s by seminal works of Ball and Brown (Citation1968) and Fama et al. (Citation1969). Elekdag and Wu (Citation2013), Hasan and Xie (Citation2013), and Zhu and Jog (Citation2012) use an event study methodology to examine stock returns in emerging markets.
7. Our event window of [−4, 0] trading days incorporates the effect of LBs’ huge loss reported on September 10, 2008.
8. For a detailed timeline of events that occurred during the GFC, refer to Bartram and Bodnar (Citation2009).
9. The Fama et al. (Citation1969) market model is superior to the market-adjusted returns model because the market-adjusted returns model is a restricted market model with alpha constrained to zero and beta constrained to be one (MacKinlay Citation1997).
10. Since the GFC was a period characterized by high levels of volatility, it would be inappropriate to have an estimation period immediately prior to the event of LBs’ bankruptcy (see Ranjeeni Citation2014).
11. Negative news announcements on Lehman Brothers dominated the event window of [−4, 0] trading days (Bartram and Bodnar Citation2009).
12. The Boehmer, Masumeci, and Poulsen (Citation1991) standardized cross-sectional test is a hybrid formed by combining the two approaches of standardized residuals (Patell Citation1976) and the ordinary cross-sectional method (see Brown and Warner Citation1980).
13. Since we examine the sample of securities at the sector level, cross-sectional dependence in the AR arising from event date clustering can occur to a greater extent and cause measurable misspecifications (Brown and Warner Citation1985).
14. A similar analysis has been used by Ajayi, Mehdian, and Perry (Citation2004) to examine DOW stock return anomaly in Eastern European emerging markets.