
- •Contents
- •Introduction
- •Context
- •Graph 1 – Situation X da – company a’s demand dc – competitors’ demand
- •Financial Data Mining Literature
- •Picture 1 – Word ratio and stock performance visual comparison (Nagar and Hahsler 2012, pp. 15)
- •Competitors’ Effect Literature
- •Critical Analysis and Gap in Research
- •Proportion of competitors’ influence on the stock return
- •Proportion of the news’ effect on competitor(s)’ return
- •Justification
- •Industry return as control variable
- •Controlling for the market
- •Graph 3 – Agilent Technologies squared returns
- •Ratio Analysis
- •Competitors’ Influence - Regression
- •Industry return as control variable
- •Influence on Competitors – Regression
- •Regression analysis results
- •Industry return as control variable
- •Conclusion
- •Proportion of competitors’ influence on the stock return
- •Industry return as control variable
- •Proportion of the news’ effect on competitor(s)’ return
- •Possibility for practical use
- •Limitations of the research
- •Recommendations for future study
- •References
- •Appendix
Regression analysis results
Market return as control variable
|
Competitor 1 |
Competitor 2 |
||
|
P-value |
|
P-value |
|
MSFT |
-0.0361 |
0.2818 |
-0.0297 |
0.5095 |
Table
12 – Abridged
Table 7. Estimated values of
and
P-value
less than 0.1 denotes 90% significance level
The only case when the values of and are negative is for Microsoft and its competitors – Apple and Google. However, the results are not significant even at 90% confidence level, therefore no arbitrage profits can be safely earned.
Industry return as control variable
|
Competitor 1 |
Competitor 2 |
||
|
P-value |
|
P-value |
|
AAPL |
-0.1225 |
0.0000 |
-0.1480 |
0.0000 |
MSFT |
-0.5681 |
0.0000 |
0.0561 |
0.2091 |
Table
13 – Abridged
Table 8. Estimated values of
and
P-value
less than 0.01 denotes 99% significance level
If the regression controls for the industry instead, Apple and Microsoft show significant opposite effects from competitors’ stocks. 1% increase in Google and Hewlett-Packard stocks causes -0.1225% and -0.148% decrease in Apple’s share price. In addition, 1% increase in Apple’s share causes a negative change of -0.5681% in Microsoft stock price. The results are significant at 99.9% confidence level; therefore arbitrage profits can be earned.
To do so, programs calculate intraday price change for Microsoft and Hewlett Packard. A positive price change triggers a short sell transaction of Apple stock, while a negative price change triggers a buy transaction. Similarly, programs calculate intraday price change for Apple stock and buy/sell Microsoft stock.
Influence on Competitors
|
Competitor 1 |
Competitor 2 |
||
|
P-value |
|
P-value |
|
AAPL |
-0.7736 |
0.0000 |
-0.9780 |
0.0000 |
MSFT |
-0.0485 |
0.1191 |
-0.0708 |
0.3635 |
NCR |
-0.0117 |
0.8934 |
0.0427 |
0.1433 |
Table
14 – Abridged
Table 9. Estimated values of
and
P-value
less than 0.01 denotes 99% significance level
This time, only Apple’s significant news shows significant opposite effect on its competitors. However, the magnitude of the effect is striking. A 1% increase in share price for Apple causes -0.7736% and -0.978% decrease in Google and Hewlett Packard stocks.
Arbitrage profits can be earned from this information. If programs detect significant good news for Apple (or significant increase in its share price), they can short sell Google and Hewlett-Packard stocks.