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The significance of non-financial information flows in risk management

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3 Author(s)
Arnerić, J. ; Dept. of Quantitative Methods, Univ. of Split, Split, Croatia ; Jurun, E. ; Rozga, A.

Risk management in this paper is focused on the concept of information efficiency. Information efficiency means that prices fully reflect all relevant information at every instant and therefore prices can not be predicted, i.e. prices are evolving randomly. When stock markets are not efficient, there are possibilities for speculation. Although neither the direction nor the magnitude of the price change can be specified without knowing the expectations model of investors, therefore Capital Asset Pricing Model (CAPM) will be used for removing the market wide effects, i.e. unspecified factors. By removing the effects from unspecified factors, unexpected price changes can be estimated, in period around the announcement day, due to the incoming information. The aim of this paper is to provide evidence of information which can affect investor's strategies, and to compare the influence of bad news and good news to the price changes. Moreover, empirical analysis will show that there is significant correlation between information content of the incoming news and price volatility (unexpected price changes) based on data set of daily closing prices for 6 most traded stocks, all obtained form Zagreb Stock Exchange. It is expected that bad news have greater influence on price movements than the good news.

Published in:

Education and Management Technology (ICEMT), 2010 International Conference on

Date of Conference:

2-4 Nov. 2010