Market Reaction to Price-Sensitive Announcements in Pakistan

Abstract

This study examined the impact of price-sensitive announcements on stock return anomalies in Pakistan. It analyzed how the stock market reacts to four types of announcements: corporate announcements (dividend, earnings, and mergers & acquisitions), expansion announcements, ownership change announcements, and changes in capital structure. Cumulative Average Abnormal Return (CAAR) was used as the main measure of market reaction. Multiple regression models were applied to determine the direction, magnitude, and significance of the relationships. The results of the corporate announcement model show that dividend, earnings, and merger & acquisition announcements have a statistically significant effect on CAAR. This means that these announcements influence stock returns and create noticeable market reactions. For expansion announcements, firm size and leverage were used as explanatory variables. The findings indicate that CAAR is significantly affected by expansion-related factors. Firm size shows a positive effect, while leverage has a negative effect on abnormal returns. In contrast, the results for ownership change announcements reveal that CAAR is not statistically significant, suggesting that the market does not react strongly to ownership changes. The results for changes in capital structure are statistically significant, indicating that adjustments in debt and equity influence stock returns. Overall, the findings suggest that most price-sensitive corporate announcements lead to short-term return anomalies in the Pakistani stock market, except for ownership change announcements. These results show that the market responds differently to different types of corporate events. The study contributes to the existing literature on event studies and market efficiency by providing evidence from an emerging market like Pakistan.

Keywords

Corporate Announcements, CAAR, Anomalies, Market Reactions