|Adm. - Grad.||2011 - 2016|
|Dir.; Codir.||Stéphane Gagnon|
Contagion of Preceived Risk Related to Project News: Comparison of Co-Jumps in Information Technology and Consumer Product Industries
Publicly traded companies are the subject of financial news covering a variety of events. The news can be classified as relating to ongoing projects (e.g. new products, major investments, and diversification) or relating to organizational and economic contexts (e.g. leadership, financing, markets). Interpretations of such news affect the financial market’s risk perception, which depends on the potential impact of events on profitability.
We evaluate the perception of two key factors which may vary according to a company’s cost structure, namely volatility and strategic flexibility. These factors may vary according to the types of companies, whether project-based organizations (i.e. partnership networks under rigid contracts, high fixed costs, absorption of losses) or manufacturers (i.e. outsourcing network, low-cost agility, prevention of losses).
We perform a factual study of events in two industries, one the information technology industry and the consumers industry. These segments face the same market conditions; therefore, we can clearly isolate the interpretations of risk according to organizational contexts. We analyze a Bloomberg database and a newswire from Dow Jones Factiva updated by the minute over a period of 102 workdays and focused on segments of the S&P 500. We extract 188 relevant news items, 76,74% of which relate to projects of companies.
The indicator selected to analyze perceived-risk contagion is the result of co-jump analysis, or the occurrence of simultaneous shocks or variations, between multiple stocks, instruments, or markets, as measured by yield and volatility. We apply the model used to detect co-jumps in an equity portfolio, also weighted using the method based on mean cross products developed by Barndorff-Nielsen and Shephard (2003), and further refined using the standardized mean cross product (Zmcp) method by Bollerslev, Law et Tauchen (2008).
Our study brings us to conclude that the perceived risk contagion is most significant in the IT and consumers industries, with more impact in the consumers industry than in the IT industry. Moreover, we notice that project-oriented news creates more significant contagion in the consumers industry than that resulting from enterprise-related news and they do the same in the IT industry. The effect of perceived risk contagion is amplified by market volatility. High-volatility periods have considerable impact on project-oriented news in the IT and the consumers industries, and low-volatility periods have an impact, on enterprise-related news in the IT sector, as well as on project-oriented news in the consumers sector. Finally, we also notice that the equipment segment of the IT industry and the consumer durables segment of the consumer goods industry behave in the same way as other segments in their respective industries. In both cases, news cause perceived risk contagion and, in both cases, news from the consumer goods industry cause more contagion than those from the IT industry, but project-related news items generate more perceived risk contagion in the equipment segment of the IT industry, and enterprise-related news generate more contagion in the consumer durables segment.
The interpretation of results provides an opportunity to make recommendations with regards to project management. Indeed, risk management can be adjusted according to business segment, type of news and current market volatility. When market volatility is low and investors are looking for medium- and long-term returns, Merger & Acquisition news have more impact than when the market is more volatile. It would then be wise, time permitting, to wait until the market stabilizes before publishing such an ad in order to leverage maximum investor impact, however avoiding any leak of the information, failing which the market could adjust and neutralize the impact of the announcement. Conversely, Project & Product Release ads have more impact when the market is volatile, and investors are looking for a quick gain.