indicate that investors respond earlier to the information and single company recommendations have greater impact on the stock prices than those of multi-com-
pany recommendations. Finally, they report higher trading volume around the publication day.
There are also studies investigating the factors influencing the magnitude of stock market reaction to analysts’ information or recommendation provided by various
publications. Beneish 1991 investigates explanations for the significant stock price reaction to analysts’ information reported in the ‘HOTS’ column of the WSJ. The
results indicate that market reaction persists after controlling for confounding releases. Furthermore, stock prices adjust prior to publication when recommenda-
tions are reported on a single firm. Huth and Maris 1992 examine the same issue in terms of the usefulness of recommendations in short term trade decision making
and firm size. The findings indicate that information obtained from the HOTS column can produce statistically significant stock price movements. Firm size is
found to be important only for negative comments in the column. Barber and Loeffler 1993 analyze the stock price and volume behaviors using recommenda-
tions published in the Dartboard column of the WSJ. They report average positive abnormal returns of 4 in 2 days following the publication. Furthermore, average
volume doubles normal volume level in the same period.
More recently, Mathur and Waheed 1995 investigate the stock price behavior of firms that are favorably mentioned in the ‘Inside Wall Street’ column of Business
Week. The results reveal the existence of positive significant abnormal returns on the day before the publication date, the publication date, and 2 days after the
publication date. The study suggests that information provided by the column is valuable to short term traders if transaction costs are low. Moreover, the results
indicate that investors who invest long term based on the information obtain rate of returns below market returns.
In general, the studies on stock market rumors or analysts’ recommendations support the view that information provided to investors is valuable. This paper
aims to investigate the effects of stock market rumors on stocks traded at the ISE to provide evidence from an emerging market.
3. Data and methodology
The study uses the stock market rumors published in the HOTS column of the ‘ET’ weekly magazine during the period of July 21, 1996 and August 17, 1997.
1
The HOTS page is published every week in ET. Topics covered in the page include
information about both single firms and a group of firms. The purpose of the page is to inform investors about market developments influencing stock prices. Informa-
tion provided by the HOTS, with rare exceptions, is favorable.
1
The study period of 1996 – 1997 is randomly selected.
Table 1 reports the sample selection and the division of final sample based on the content of rumorsgossip. During this period, a total of 614 favorable gossiprumor
are reported.
2
From this sample, the rumors published on the same topic and about the same firm in subsequent weeks are eliminated 186 rumors. Furthermore, firms
with missing stock price data 73 rumors are eliminated. The net sample consists of 355 rumorsgossip.
I, then, classify the net sample according to the content of the rumors. I identify six groups of rumors. They are earning expectations rumors; firm salesexport
rumors, undervalued stocks rumors, purchases by foreign investors’ rumors, un- classified rumors, and rumors without any content. The distribution of net sample
based on the content of rumors is outlined in the Panel B of Table 1. The most favorite topic of rumors is earnings expectations with 128 rumor, followed by
unclassified topics
3
with 108 rumors. Rumors without any content
4
68 rumors are in the third place. The remaining topics include undervalued stocks 23 rumors,
purchases by foreign investors 22 rumors, and salesexport expectations six rumors.
Table 1 Sample selection and content of rumors
a
No. rumors Panel A
:
Sample selection All rumors published
614 186
Less: subsequently published rumors Less: missing data
73 Net sample
355 Panel B
:
Classification of net sample based on the content of rumors Content of rumors
No. rumors 128
Earnings expectations Firm salesexport
6 Undervalued stocks
23 22
Purchases by foreign investor Unclassified
108 Rumors without content
68 355
Total
a
This table presents the sample selection and the contents of rumors. The sample consists of favorable stock market rumors published in the HOTS column of ‘‘Ekonomik Trend’’ weekly magazine during the
period of 1996–1997. The magazine is published and distributed on Sundays.
2
During the study period, there were only three unfavorable rumorsgossips in the HOTS column, and they were not included in the study.
3
These rumors are the ones, which do not fall into any of identified rumorsgossips group. However, they do have contents.
4
These rumors do not contain any reason. A typical rumor in this case would state that an increase in stock prices is expected based on conversations on the street.
Table 2 Daily average abnormal returns AARs surrounding the publication of rumors
a
Event days t-value
AARs −
0.99 −
10 −
0.17 −
9 −
0.03 −
0.02 −
8 −
0.26 −
1.29 −
7 0.21
1.49 −
6 −
0.05 −
0.08 −
5 −
0.20 −
0.21 −
4 3.29
0.52 −
3 0.29
2.14 −
2 4.89
0.76 −
1 0.78
3.60 –
– +
1 0.07
0.36 +
2 −
2.65 −
0.43 +
3 −
0.04 −
0.06 +
4 −
1.12 −
0.37 +
5 −
0.04 −
0.44 +
6 −
1.44 −
0.21 +
7 0.21
1.31 +
8 −
0.01 −
0.04 +
9 −
0.10 −
0.09 +
10 −
1.42 −
0.42
a
This table presents the abnormal returns surrounding the publication date t = 0 in the Ekonomik Trend. Abnormal return is calculated as the difference between the actual and expected return. Expected
return is generated from the market model parameters. The ISE Composite index used as a proxy for market. The t-statistics tests the null hypothesis that the average abnormal returns are equal to zero.
Statistically significant at 1. Statistically significant at 5.
The event study methodology is employed to analyze the effects of rumorsgos- sips on stock prices as surveyed by Brown and Warner 1985. The analysis period
extends from day − 30 to + 30 relative to publication date t = 0.
5
4. Empirical results
