Analyzing frequent acquires in emerging markets and futures markets linkage

131 Pages·2013·0.87 MB·English

by  Naseem Al Rahahleh

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University of New Orleans Theses and
Dissertations and Theses
Dissertations
5-15-2009
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Naseem Al Rahahleh
University of New Orleans
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Al Rahahleh, Naseem, "Analyzing frequent acquires in emerging markets and futures markets linkage"
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Analyzing frequent acquires in emerging markets and futures markets linkage

A dissertation

Submitted to the Graduate Faculty of the
University of New Orleans
in partial fulfillment of the
requirements for the degree of

Doctor of Philosophy
in
Financial Economics

by

Naseem Al Rahahleh

B.S.(Hons.)-Yarmouk University, Jordan, 1994
M.S.(Hons.)-Yarmouk University, Jordan, 1997
M.S.-University of New Orleans, 2007

May, 2009
Copyright 2009, Naseem Al Rahahleh
ii
Dedication

This dissertation is dedicated to my beloved wife, Iman. Her love, patience, and support
made my research possible. Her words of encouragement sustained me through the difficult
moments of this journey. Iman, you have my deepest gratitude.

iii
Acknowledgment

I am deeply indebted to the many people who assisted and supported me during my study. I am
very grateful to my advisor, Prof. Peihwang Philip Wei for his careful guidance. His enthusiasm
and openness during the exchange of ideas that constitutes a dissertation was a great source of
inspiration.

I was also fortunate to receive the support and encouragement of my committee members: Prof.
Sudha Krishnaswami, Prof. Tarun K Mukherjee, Prof. Atsuyuki Naka, and Prof. Arja H
Turunen-Red. They provided excellent advice and insightful commentary. I am truly blessed to
have had the guidance of this committee. To them I owe a lasting debt of gratitude.

Special thanks go to my parents and my family, who have always provided support and
encouragement throughout my studies. Without their help and encouragement, my academic
journey would not have been possible.

Of course, the greatest support of all came from my wife, Iman. She lived with this dissertation
as I did and fostered a family environment that made the writing so much easier. It is difficult to
overestimate her contribution. No expression of my thanks to her can ever be adequate. My
sons Zeid and Farris did their part as well. They were as good as small children can be, during a
time when their father needed peace and quiet to work.

Finally, I would like to acknowledge Prof. Walter Lane; Chair of the Department of Economics
and Finance for his continued support. I also would like to extend my thanks to the faculty of the
Department of Economics and Finance at the University of New Orleans. Not to forget thanking
Mr. Russell Holliday for his help.

iv
Table of Contents
List of Figures ............................................................................................................................................ vii
List of Tables ............................................................................................................................................ viii
Abstract ........................................................................................................................................................ x
Introduction ................................................................................................................................................. 1
Chapter 1 ..................................................................................................................................................... 4
1. Introduction: ...................................................................................................................................... 4
2. Literature Review: ............................................................................................................................ 7
2.1. M&As’ and Acquirers’ Performance: .................................................................................. 7
2.2. Performance of Repeated Acquirers: .................................................................................... 8
2.2.1.Agency Problems and Hubris Hypothesis: .................................................................. 9
2.2.2.Other Hypotheses: ..................................................................................................... 10
2.3. Focus of the Paper .............................................................................................................. 11
3. Data and Methodology .................................................................................................................... 12
3.1. Sample Details: ................................................................................................................... 12
3.2. Announcement Abnormal Return: ..................................................................................... 22
4. Empirical Results: ........................................................................................................................... 22
4.1. CARs Trend: ....................................................................................................................... 22
4.1.1.Univariate Analysis: .................................................................................................. 22
4.1.2.Multivariate Analysis: ............................................................................................... 29
4.2. What are the Driving Forces for a Declining Trend in CARs? .......................................... 33
4.2.1.The Effect of the Successful First Time Acquirer ..................................................... 33
4.2.2.Pattern in Merger Premium: ...................................................................................... 40
4.2.3.Time Interval between Successive Acquisitions: ...................................................... 44
5. Conclusion: ..................................................................................................................................... 47
References ............................................................................................................................................... 49
Chapter 2 ................................................................................................................................................... 53
1. Introduction: .................................................................................................................................... 53
2. Literature Review: .......................................................................................................................... 56
3. Data and Methodology: ................................................................................................................... 62
3.1. Sample Details: ................................................................................................................... 62
3.2. Dynamic Conditional Correlation Model: .......................................................................... 67
3.3. Price Discovery in Futures Markets: .................................................................................. 71
4. Empirical Results: ........................................................................................................................... 73
4.1. Summary of the Markets .................................................................................................... 73
4.2. DCC Model Results:........................................................................................................... 76
4.2.1.Agricultural Futures: ................................................................................................. 76
4.2.2.Metal Futures: ............................................................................................................ 84
4.2.3.Stock Index Futures: .................................................................................................. 90
4.3. Discussions of Overall Results of the DCC Model ............................................................ 94
4.4. Results for Price Discovery in Futures Markets: ................................................................ 95
5. Conclusions ..................................................................................................................................... 98
References ............................................................................................................................................... 99
v
Appendices ............................................................................................................................................... 102
Appendix 1: Commodity and Financial Futures Contract Specifications ............................................. 102
Appendix 1-A: Coffee Futures Commodity Contract Specifications ............................................... 102
Appendix 1-B: Corn Futures Commodity Contract Specifications .................................................. 103
Appendix 1-C: Soybeans Futures Commodity Contract Specifications ........................................... 104
Appendix 1-D: Wheat Futures Commodity Contract Specifications ................................................ 105
Appendix 1-E: Aluminum Futures Commodity Contract Specifications ......................................... 106
Appendix 1-F: Copper Futures Commodity Contract Specifications ............................................... 107
Appendix 1-G: Gold Futures Commodity Contract Specifications .................................................. 108
Appendix 1- H: Financial Futures Contract Specifications .............................................................. 109
Appendix 2: Conversion Unit ............................................................................................................... 110
Appendix 3: Trading Hours in Greenwich Mean Time for Futures Markets........................................ 112
Appendix 4: Dynamic Conditional Correlation Plots ........................................................................... 113
Vita ........................................................................................................................................................... 120

vi
List of Figures

Figure 1: Time-Varying Correlations between Daily Futures Market Returns for
Coffee Futures .............................................................................................................113
Figure 2: Time-Varying Correlations between Daily Futures Market Returns for
Corn Futures ................................................................................................................114
Figure 3: Time-Varying Correlations between Daily Futures Market Returns for
Soybeans Futures .........................................................................................................115
Figure 4: Time-Varying Correlations between Daily Futures Market Returns for
Wheat Futures ..............................................................................................................116
Figure 5: Time-Varying Correlations between Daily Futures Market Returns for
Aluminum Futures .......................................................................................................117
Figure 6: Time-Varying Correlations between Daily Futures Market Returns for
Copper Futures ............................................................................................................117
Figure 7: Time-Varying Correlations between Daily Futures Market Returns for
Gold Futures ................................................................................................................118
Figure 8: Time-Varying Correlations between Daily Futures Market Returns for
S&P CNX Nifty Index Futures ...................................................................................118
Figure 9: Time-Varying Correlations between Daily Futures Market Returns for
Financial Futures .........................................................................................................119

vii
List of Tables
Chapter 1

Table 1: Summary of M&As Activity for Frequent Acquirers by Country ............................... 15
Table 2: M&As Activity for Frequent Acquirers by Industry .................................................... 17
Table 3: Sample Statistics for Frequent Acquirers across Different Deal Characteristics ......... 20
Table 4: Cumulative Abnormal Returns (CARs) for Frequent Acquirers by Deal Order .......... 25
Table 5: Cumulative Abnormal Returns of (CARs) Frequent Acquirers by Deal Order and by
Mode of Payment ......................................................................................................... 28
Table 6: CARs by Deal Order- Results of the Multivariate Analysis ......................................... 32
Table 7: Results of Multiple Regression of Acquisition Performance on Acquisition
Characteristics .............................................................................................................. 36
Table 8: Cumulative Abnormal Returns for Successful First Time Acquirers by Deal Order ... 39
Table 9: Multivariate Analysis: Regressions of Bidder Premium for the First Successful
Acquisition on Deal Order ........................................................................................... 43
Table 10: Time Between Subsequent Acquisitions by Number of Deals: TBA Pattern .............. 46

Chapter 2

Table 1: Summary Statistics on Daily Futures Returns .............................................................. 65
Table 2: Augmented Dickey-Fuller Test for Unit Root .............................................................. 66
Table 3: Market Liquidity and Market Size ................................................................................ 75
Table 4: VAR-DCC Model Estimation Results for Coffee Futures Traded in
United States, United Kingdom, Brazil, and Japan ...................................................... 77
Table 5: World Market of Coffee ............................................................................................... 77
Table 6: VAR-DCC Model Estimation Results for Corn Futures Traded in
United States, United Kingdom, China, and Japan ...................................................... 79
Table 7: World Market of Corn .................................................................................................. 79
Table 8: VAR-DCC Model Estimation Results for Soybeans Futures Traded in
United States, China, Japan, and Brazil ....................................................................... 81
Table 9: World Market of Soybeans ........................................................................................... 81
Table 10: VAR-DCC Model Estimation Results for Wheat Futures Traded in
United States, Canada, United Kingdom, and China ................................................... 83
Table 11: World Market of Wheat ................................................................................................ 83
Table 12: VAR-DCC Model Estimation Results for Aluminum Futures Traded in
United States, China, and Japan ................................................................................... 86
Table 13: World Market of Aluminum ......................................................................................... 86
Table 14: VAR-DCC Model Estimation Results for Copper Futures Traded in
United States and China ............................................................................................... 87
Table 15: World Market of copper ............................................................................................... 87
Table 16: VAR-DCC Model Estimation Results for Gold Futures Traded in
United States, China, and Japan ................................................................................... 89
Table 17: World Market of Gold .................................................................................................. 89
Table 18: VAR-DCC Model Estimation Results for the S&P CNX Nifty Index Futures
Traded in Singapore and India ..................................................................................... 92
viii
Table 19: VAR-DCC Model Estimation Results for the Nikkei 225 Futures Traded in
United States, Singapore and Japan ............................................................................. 93
Table 20: Vector Error Correction Models Coefficients and the ith Market Contribution
to the Price Discovery Process ..................................................................................... 97

ix