Are Good Companies Also Good Investments？
Date Issued
2007
Date
2007
Author(s)
Chou, Fang-Yi
DOI
zh-TW
Abstract
This research uses the results of eleven surveys of Taiwan’s most admired firms conducted annually by 天下 magazine during the time period 1994-2005. By analyzing both the short-term and long-term performances of these companies and how they are related with the firms’ stock returns and trading volumes, I hope to answer the controversial question that has left investors wondering, “ Whether a good company’s stock is really worth investing ? ”.
By examining the stock returns and trading volumes ten days before and after the survey is released, this paper finds that, in the short-run, abnormal trading volume can be observed one to three days before the survey is released and that the survey does have an announcement effect on investors. However, the stock prices of these benchmark companies seldom go up before an event, therefore the potential profit from trading using the survey results is limited.
Using different regression designs, this paper finds that, in the long-run, the stock returns and trading volumes of companies nominated for benchmark companies are both lower than those of comparable companies. In addition, by examining the stock returns and trading volumes twenty weeks before and after the release of the survey, this survey finds that the stock return of a company worsens after being nominated. Company performance does not have any significant effects on trading volume. Lastly, this paper looks at different investment portfolios consisting of these benchmark companies and their performances in a 47-week time span and finds that investors can profit from buying stocks of companies that are not performing very well. Based on the above-mentioned analysis, this paper concludes that a good company’s stock may not be worth investing, which supports the views of behavioral finance scholars’ and researchers’ that investors often overestimate the stock price of a company because they are overly optimistic. Due to mean reversion, the stock returns of these companies are often not what the investors were expecting. A possible explanation of this finding is that investors adopt representative bias and regret aversion when making their investment decisions. This paper proves that a good company’s stock is not worth investing by comparing the trading volumes of these companies with other companies in the same sectors. Other parts of this research may need further research due to the fact that the results are not statistically significant.
Subjects
標竿企業聲望調查
宣告效果
過度樂觀
均數反轉
代表性偏誤
避免後悔
surveys of Taiwan’s most admired firms
announcement effect
overly optimistic
mean reversion
representative bias
regret aversion
Type
thesis