An Event Study Investigating a Fund Retu

n° 144
September-October 2016
ISSN 2101-9304
150 euros
revue-banque.fr
an academic and professional review
ARTICLES
4 Violating
United Nations Global Compact Principles:
An Event Study
Anastasia BORISOVA, University of Lausanne, Faculty of Business and Economics
Michael ROCKINGER, Swiss Finance Institute, University of Lausanne, Faculty of Business and Economics
20 Investigating
a Fund Return Distribution when the Value
of the Fund under Management is Irregularly Observed
KiHoon Jimmy HONG, College of Business Administration, Hongik University, Seoul
John KNIGHT, University of Western Ontario
Stephen SATCHELL, Trinity College, University of Cambridge
31 Intergenerational
Risk Trading and the Innovative Role
of Equity-Wage Swaps
Jiajia CUI, Shell Asset Management
Eduard H. M. PONDS, Tilburg University, APG Asset Management
44 Relationships
between Trading Volume, Stock Returns
and Volatility: Evidence from the French Stock Market
Anthony MILOUDI, La Rochelle Business School & CRIEF University of Poitiers, France
Mondher BOUATTOUR, La Rochelle Business School & LGCO University of Toulouse Paul Sabatier, France
Ramzi BENKRAIEM, Audencia Business School, Nantes, France
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Abstracts
■■Violating United Nations Global
Compact Principles: An Event Study 4
Anastasia BORISOVA, University of Lausanne, Faculty of Business and
Economics
Michael ROCKINGER, Swiss Finance Institute, University of Lausanne,
Faculty of Business and Economics
and the Innovative Role of EquityWage Swaps 31
Jiajia CUI, Shell Asset Management
Eduard H. M. PONDS, Tilburg University, APG Asset Management
The Volkswagen diesel scandal of September 2015 demonstrated that financial metrics are insufficient to capture Corporate Socially Responsible
risks. In this paper we conduct an event study of corporate news with violations of CSR principles as formulated in the UN Global Compact, using
daily data and quoted companies between 2009 and 2015. We find that
companies behaving irresponsibly face a significant stock price decrease
on the announcement day. We analyze the impact of each principle and
demonstrate that those components associated with stronger economic
and legal consequences such as pollution, complicity, and bribery have a
significant permanent impact while violations linked to freedom of association, human rights, child labour, forced labour, and discrimination
do not reveal a pronounced persistent effect on stock prices. Another
consequence is a large reputation cost.
JEL classification: G14; G34; L21; M14.
Keywords: Environmental, Social, and Corporate Governance; Corporate Social
Responsible Investment; UN Global Compact; Event Study; Reputation Losses.
■■Investigating a Fund Return
Distribution when the Value
of the Fund under Management
is Irregularly Observed
■■Intergenerational Risk Trading
From a life cycle theory perspective, both young and old individuals may
gain from a reallocation of equity and wage risk exposure between each
other. However, current financial markets do not offer wage growth-linked
securities and borrowing against labor income without collateral is difficult.
To improve intergenerational risk reallocation, we propose a market-based
voluntary risk trading arrangement between coexisting generations via an
innovative swap market where participants trade equity-related returns
for wage-linked returns, and vice versa. The maturity of the swap contract
is restricted to one year to address the collateral issue. We find there is
always a market for equity–wage swaps and the market-clearing premium
will vary depending on multiple state variables (economy, demographics,
and human and financial capital). This innovative swap market is effective
at improving the welfare of all generations because the trading of wagelinked returns leads to a more complete market, enabling individuals to
realize a more preferred risk exposure over their life cycles.
JEL classification: D52; G11; G23.
Keywords: Intergenerational Risk Trading; Equity-wage Swap Market;
Wage-linked Claims; Incomplete Market; Equilibrium Pricing.
■■Relationships between Trading
20
KiHoon Jimmy HONG, College of Business Administration,
Hongik University, Seoul
John KNIGHT, University of Western Ontario
Stephen SATCHELL, Trinity College, University of Cambridge
We propose an estimation technique that directly utilizes irregularly spaced
observations to investigate the statistical properties of irregularly observed
monetary values of a fund under management. The contribution of our
paper is that we provide a statistically enhanced and more detailed method
that improves the existing likelihood based techniques developed in other
fields in estimating the parameters of irregularly spaced observations.
JEL classification: C51; C58; G23.
Keywords: Fund Value under Management; Heteroskedasticity; Irregularly
Spaced Time Series; Ornstein Uhlenbeck; Return Distribution.
Volume, Stock Returns and Volatility:
Evidence from the French Stock
Market
44
Anthony MILOUDI, La Rochelle Business School & CRIEF University of Poitiers,
France
Mondher BOUATTOUR, La Rochelle Business School & LGCO University of
Toulouse Paul Sabatier, France
Ramzi BENKRAIEM, Audencia Business School, Nantes, France
This paper investigates the relations between market turnover, stock returns
and conditional volatility on the French stock market. Our database consists of
monthly observations of 128 common stocks from April 1996 to October 2014.
We aggregate data to study the market-wide relationships between turnover, returns and volatility. Using contemporaneous relations, bivariate vector
autoregression (VAR), Granger causality test and impulse response functions,
we find that market turnover is positively related to contemporaneous and
past returns, which we interpret as evidence of the mixture of distributions
hypothesis (MDH) and the investor overconfidence hypothesis. This suggests
that stock returns help forecast volume. However, there is weaker evidence
regarding the informative content of trading volume when forecasting returns.
JEL classification: G10; G12; C32.
Keywords: Turnover; Stock Market Returns; Var Analysis; Granger Causality
Test; Impulse Response Functions.
bankers, markets & investors n° 144 September-October 2016
3
Violating United
Nations Global Compact
Principles: An Event Study
■ I. Introduction
ANASTASIA
BORISOVA
PhD student
University
of Lausanne,
Faculty of
Business and
Economics
MICHAEL
ROCKINGER
Professor of
Finance
Swiss Finance
Institute,
University
of Lausanne,
Faculty of
Business and
Economics
An early recognition that illicit behaviour, such as the
likes of Enron’s, Parmalat’s, and Worldcom’s, may lead
to significant losses for its shareholders, brought about
a fundamental reform of accounting rules. As it is, the
Deepwater Horizon oil rig pollution in the Gulf of Mexico,
5 years after the disaster, still weights on BP’s activities
with new class actions and lawsuits.1 UBS’ lack of transparency left the company with over a billion dollars in fines
and new lawsuits are still being brought up. Volkswagen
in their diesel scandal lost 16.55% of its market capitalisation in one day as it admitted to cheating about gas
emission control. Accounting rules on their own are therefore insufficient to avoid dramatic shareholder losses
due to lack of good managerial practices. Management
needs to understand the costs of irresponsible and illicit
behavior and incorporate it into decision making. But
how high are those costs?
Over the recent years, there has been an emergence of
Corporate Social Responsible (CSR) practices to which
certain firms adhere and that appear relevant to investors.
Clearly, the example of Volkswagen, which built their
marketing strategy for the US market on them being
particularly ecological, shows that “green washing’’
and adhering to CSR practices is not sufficient. Unless
firms and their managers understand that violation of
CSR principles lead to significant financial losses for
their shareholders and ultimately to themselves, one may
expect further violations. Following Waddock (2008), this
brings about the question of which framework should be
used for CSR practices. Once such a framework adopted,
we ask what is the actual cost for violating CSR practices.
* Corresponding author
Faculty of Business and Economics, Extranef Building, CH-1015 Lausanne, Switzerland.
E-mail: [email protected].
We would like to thank Doris Rochat-Monnier as well
as Sébastien Pouget (the referee) for useful comments.
The usual disclaimer applies.
4
Rockinger.indd 4
In this paper we focus on those CSR components that
primarily aim at avoiding risks of neglecting sustainability
issues and, therefore, become a minimal requirement for
today’s business. The United Nations Global Compact
(UNGC) is one of the best known and most adhered to
initiatives. As of December 2015 over 12 000 business
and non-business participants are part of the initiative.
According to Leipziger (2010) the major advantage of
the UNGC is that it aims at increased transparency and
accountability and encourages dialogue between several
social actors who had never previously been engaged in
discussion.2 The UNGC involves a set of 10 principles
covering a broad spectrum of CSR components to which
firms should adhere.
In this paper we focus on an issue that has, to our
knowledge, not yet been investigated in the studies
covering the implementation of the UNGC. We conduct
an event study of companies actions that violate UNGC
principles whether these firms are its subscribers or not.
Besides revealing that UNGC violations matter from a
stock market valuation point of view, by selecting a set
of cases of violations for each principle, we disentangle
those principles that are more relevant from the point of
view of financial loss. To anticipate our findings, those
events that come with a true legal or economic cost matter
more than those of just ethic consideration. We will also
demonstrate that such violations lead to a significant loss
of share value due to a deteriorated reputation.
Despite a lack of event studies of violations of UNGC
principles there are several studies that focus on CSRharmful announcements. In an early study, Frooman
(1997) conducted a meta-analysis of 27 event-studies
that measured the stock market reaction to incidences
of socially irresponsible and illicit behaviour. Its effect
on shareholder’s wealth was negative and highly statistically significant. Drusch and Lioui (2010) consider
social announcements by several French firms such as
help for professional integration of young people or help
for suburbs, and show that only these two dimensions,
among several others, are positively rewarded by the market. A recent study lead by Hirsh and Cha (2015) examines
the financial impact of employee discrimination lawsuit
Bankers, Markets & Investors nº 144 september-october 2016
02/09/16 11:18
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ARTICLES
4
Testing the Profitability of Contrarian Trading Strategies
Based on the Overreaction Hypothesis
Matthieu DUVINAGE, National Bank of Belgium
Paolo MAZZA, IESEG School of Management
Mikael PETITJEAN, Louvain School of Management & CORE
11
Evaluating UCITS Compliant Hedge Fund Performance
Serge DAROLLES, Université Paris Dauphine
24
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Do Cooperative Banks Have Greater Market Power?
Damien EGARIUS and Laurent WEILL, LaRGE Research Center, EM Strasbourg Business School, University of Strasbourg
34
In which Media are Analysts’ Recommendations
most Followed?
Nadine GALY, University of Toulouse-Toulouse Business School
Laurent GERMAIN, University of Toulouse, Toulouse Business School and ISAE
Denis HILTON, University of Toulouse II
Rainer MATHES, Prime Research, Mainz, Germany
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