Browsing by Author "Weerakoon, Y.K."

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Share Price Reactions to the Announcement of Rights Issues on the Colombo Stock Market
(University of Kelaniya, 2005) Weerakoon, Y.K.; Hasan, S.S.M.G.
This study examines the rights issues announcement and thereby provides a test of the semi-strong form of market efficiency on Colombo Stock Market in Sri Lanka using the event study methodology with Mean Adjusted Abnormal Return Model (MAARM). A number of empirical studies show contradictory results. This study addresses two major empirical questions: (a) How does the Sri Lankan share market respond to rights issues announcement in terms of the number of trading days, liquidity of stocks, the size of the rights issues, the sectors, and the year? (b) What form of market efficiency is there in Sri Lankan share market? These issues are investigated through an overall sample of 50 rights issue announcements relating to 44 companies in 14 sectors for the period from January 1994 to December 2003. For the analysis the researcher considered an estimation period of 75 days and test period of 51 days. The study concludes that, first, overall sample at portfolio level reveals that rights issues have statistically positive reaction on share price around the days very close to the announcement day. And thereafter, results show mixed of positive and negative reactions. However, the evidence of this study is not consistent with the semi-strong form of market efficiency. Second, market reacts dramatically to announcements of rights issues for illiquid stocks and that exhibit significant positive reaction compared to the liquid and moderate level liquid stocks. And all three samples results do not confirm the semi-strong form of market efficiency. Third, share price reactions vary according to the size of the rights issue. The market reacts positively to the announcement of rights issue when the larger the size of rights issues. And it is inconsistence with the proposition that larger the size of rights issues has larger the significant positive reaction. Fourth, the share price reactions vary according to the sector. Bank, finance and insurance sector results confirm the semi-strong form of efficiency while other sectors do not confirm it. .Finally, the results of the share price reactions vary according to the year. Generally, the result of all the years confirms the result of the overall sample relating to semi-strong form of efficiency. But years 1998 and 2003 only confirms the nature and significance of the share price reaction.
Why do some Investors prefer Fundamentally Weak Stocks?
(University of Kelaniya, 2005) Weerakoon, Y.K.; Perera, C.
This study investigates ‘why do some investors prefer fundamentally weak stocks? The study about this matter is imperative and exciting because there are plenty of models to justify the investment in fundamentally strong stocks and at the same time those models debar the choice of fundamentally weak stocks. But among the stocks quoted in the Colombo Stock Exchange (CSE) fundamentally weak stocks outperformed the market both in terms of liquidity as well as price boost. In order to discover the reasons, data have been gathered from a sample of active investors representing all categories of investors and analysed those using descriptive statistical tools. The pertinent secondary data compassionate to the hints and trends arising from the primary data gathered from the investors have used concurrently. A sample of stocks representing majority of the sectors in the CSE, whose trading volumes and number of transactions executed are among the highest in the market, were selected to study. The study finds that bulk of the investors consider fundamental variables of Net Asset Value, Price/Earnings Ratio and Dividend Yield. They also muscularly use the pattern of price movement for setting buying strategies. Majority of the investors are keen about their required rate of return, but pays very poor attention for the stock’s beta factor. Factors contain high degree of speculation such as trading on new information, react for improved quarterly results and high dividend expectation elevates the madness of investors to go after stocks. There is a strong correlation between the price of fundamentally weak stocks and number of trades. Investors desire fundamentally weak stocks because they are fundamentally weak. That is, the value of the stock is coming from other factors such as higher number of trades, availability of new information, improved quarterly results, high dividend expectations and the degree of foreign buying. That is why the stock price movement cannot be justified using fundamental approach. Moreover the low level of market values and the abnormal capital gains too responsible for the fondness of these stocks in excess of the fundamentally strong stocks.