Massive week in terms of preparation for the research proposal. I’ve done what feels like years of research and read what feels like millions of different pieces of literature.
However, I feel like I’ve made some progress! I have broken down my research into five distinct parts:
- Efficient Market Hypothesis;
- Literature surrounding the Banking Royal Commission;
- Reasons for changes in share prices of banks;
- The influence of political events on share prices; and
- Event studies as a methodology form
I realised quite early on (and as I alluded to in the previous blog post), that academic literature concerning the Royal Commission is extremely scare (mainly due to the fact that it happened so recently). The literature I have found is framed in a legal context and hence, not overly helpful. It has helped contextually however.
I have realised the most important parts of my research are points 4) and 5). I have chosen to frame the Royal Commission as a political phenomenon in Australia, and hence, the literature surrounding the influence of politics on share prices of companies has been extremely useful. However, most of the literature concerning this niche area is surrounding times of political uncertainty or upheaval. At this point in time, there is no literature which looks to the effect of such a political phenomenon like a Royal Commission and its effect (and hence – I have found my research gap!). Regardless of this, all of the scholars tend to come to the same conclusion after completing their research and running their analysis: that major political events have a profound impact on the prices of shares and the stock market and depending on the type of political announcement, can have a negative or positive effect.
I have also decided to not look at the four big banks exclusively anymore. I have chosen to add AMP into the mix, specifically because it seems to be the financial institution that has been hit hardest by the findings of the Commission.
In my research, I have also found literature that has conducted studies similar to what I intend to do. As you have probably read in my previous blogs, this is the part of the project I was most stressed about. After deliberating and reading a lot of technical econometrics jargon, I believe the methodology I will implement will be ‘Event studies’ which as the name suggests assesses the impact of an event on the value of a firm. Put simply, the model estimates what the ‘normal’ returns of a firm should be by looking at the returns prior to the event, and compares this to what the actual returns are during and after the event. This is an area I will focus on this week, trying to formulate an appropriate regression for the data I have acquired.
Next week my research proposal is due, so the majority of my study time this week will be spent on writing that and trying to pull all these pieces of this royal-commission-extremely-large-and-difficult-puzzle together. Wish me luck!
You have achieved substantial progressive this week Alexia! By the looks of it, I see a well structured research task underway. As you have managed to categorise your study into five sub-sections, this will allow for an ease of flow within your paper, so well done! I look forward to reading about point number three in particular which addresses the “reasons for changes in the share prices of banks” not only because it holds considerable correlation to my area of study but also because understanding share price shifts reveal a lot to do with the market.
My topic of research has also required me to delve into the intricacies of bank share price movements, therefore as a recommendation based off my own experiences I’d encourage you to look into both INTERNAL (unsystematic) and external (systematic) sources of influence.
I note that you have also managed to find your research gap! That is an achievement of its own. Investigation in the Royal Commission from a political lens will undoubtedly enhance that value of your study, especially due to the fact that there is very minimal secondary literature that taps into that component. More often than not, we hear of the Royal Commission spoken of from a business focus, hence a political stance of the topic will be rather intriguing.
In regards to your methodology, your selection of “Event Studies” would seem to be the most appropriate and achievable given the time constraint. Also, you seem to have your objectives associated with your primary research down packed, so all I have left to say is Goodluck with your proposal and I look forward to your presentation in the weeks to come.
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