DISSERTATION

Z0931779

Contents

Abstract	2
Introduction Context Theory Importance Structure Research question	3 3 5 6 7 7
Literature Review Oligopoly Literature Financial Data Mining Literature Competitors’ Effect Literature Critical Analysis and Gap in research	8 9 11 15
Methodology Sample Selection Research Design Justification Hypothesis Limitations	16 17 21 23 24
Data Analysis Preparing data Controlling for market Ratio analysis Competitors’ Influence - Regression Influence on Competitors – Regression	26 27 33 35 39
Discussion of the Results Ratio analysis results Regression analysis results	41 42
Conclusion Hypothesis check Possibility for practical use Limitations of the research Recommendations for future study	44 46 47 49
References	51
Appendix	54

Introduction

Context

New information moves the stock prices. Good news makes investors be optimistic about a company and therefore they buy the stock. Bad news, on the other hand, leads investors to sell the shares, which decreases the price. The news forms trends and patterns, and portfolio managers are willing to exploit them.

The goal of active portfolio managers is to earn money. They want to earn money in excess of the market return, but at the same time, maintain low level of risk. To do so, they engage in fundamental and technical analyses, trying to identify mispricings in the market. They look at trading patterns, historical data, financial markets and recent news. The problem with the analyses above is the time required to perform them. In recent years computers became much faster and smarter and programmers taught them to analyse news.

Currently with the release of a news article the stock prices adjust almost instantaneously due to the use of data mining software. These kinds of programs analyse text patterns and financial data from articles and financial statements in a matter of milliseconds and then perform trades accordingly. Obviously, people cannot challenge them in speed and therefore all the direct arbitrage opportunities on recent news releases disappear.

One of the most common types of competition within the technological industry is oligopoly. Oligopoly is a form of competition where few firms have the majority of the market. They produce similar goods and can make economic profit in the long run due to barriers to entry. Due to the size of companies’ market share actions of one company affects all the others in the industry.

Firms in an oligopoly share the overall market demand. Due to that fact, if company A releases an arguably better product than its competitors, the demand would shift from them to company A. Situation X: