Comovements in Corporate Waves

48 Pages Posted: 17 Mar 2010  

Gonul Colak

Hanken School of Economics

Necati Tekatli

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2010

Abstract

This paper analyzes the common factor that drives the cyclical movements in the corporate event waves. We show that this common corporate factor is closely linked to the economic business cycles. We, first, document the statistical and the time-series properties of the corporate event waves to determine the commonalities, the interdependence, and the comovements between them. We show that all the waves have similar ARMA and ARCH characteristics. Moreover, we conjecture that there are two major factors forming a corporate event wave: a systematic (or common) factor and a wave-specific (or idiosyncratic) factor. To study the common dynamics and the common factor, we propose a factor model with ARMA and ARCH properties, and develop a novel Bayesian estimation method for this model. We find that the percentages of the wave series that are driven by the common factor range from 3.54% for the IPO wave to the 67.5% for the divestitures wave. We also check whether the estimated common factor can be proxied by any major macroeconomic or financial variable. We find that the best proxy candidates are the variables closely associated with the business cycle: the industrial production (aggregate output), the inverse of the long-term interest rates (10-year T-bond yields), and the S&P 500 index (stock market levels).

Keywords: Bayesian, Corporate Events, Factor Analysis, Time Series Analysis, Waves

JEL Classification: C11, C32, G14, G34, G35

Suggested Citation

Colak, Gonul and Tekatli, Necati, Comovements in Corporate Waves (February 15, 2010). Available at SSRN: https://ssrn.com/abstract=1571425 or http://dx.doi.org/10.2139/ssrn.1571425

Gonul Colak (Contact Author)

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Necati Tekatli

affiliation not provided to SSRN ( email )

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