Market model and Robustness

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This chapter provides an overview of the research methodology used in this research. It consists of a detailed description of how this study was conducted. Moreover, it highlights the relevant theoretical framework, the research paradigm applied, and the calculations and limitations related to the method used in this research.

Theoretical framework

The first section regarding the theoretical framework will present and describe the most relevant theories used in this research. These theories serve as the foundation for investigating and discussing the topic of corporate name changes. Further, these theories will also be used to justify the choice of method used in this research.

Pricing of stocks

The price of these stocks, like any other asset, is depending on the supply and demand equilibrium. However, the price of the stock should also be determined by its underlying fundamental value. According to the law of one price, the value of a security should be equal to the present value of all its future cash flows (Berk & DeMarzo, 2016). As the value of stocks depends on the discounted future cash flows of the company, the price of any given stock must also reflect all the available information (Fama, 1970). A corporate name change could change the expected cash flows or the discount rate and, thus, affect the fundamental value of the stock, which causes the emerging of abnormal return. Therefore, the law of one price will serve as a foundation for discussing the stock price effects of a name change, since the value of the new information should affect the fundamental value of the specific stock.

The efficient market hypothesis

Fama (1970) argues that when stock prices reflect all the available information, the market is efficient. The efficient market hypothesis holds true when three conditions are met (Fama, 1970). First, there are no transaction costs. Second, information is costless and available to every investor. Third, all investors evaluate the information and its effect on prices similarly. Fama (1970) states that if these conditions are met, the market will be efficient since all available information would be reflected in the price of the stock. However, these conditions are not realistic in reality and are, therefore, an obstacle to truly efficient markets. Also, the efficiency between markets might differ, meaning that some markets could be more efficient than others (Bodie et al., 2014). If the price of the security has been determined rationally by investors, only new information should be able to change the price of the security, which gives rise to the idea that security prices are unpredictable. There are three forms of the efficient market hypothesis; the weak form, semi-strong form, and strong form. For this research, the semi-strong form is of interest, because it allows one to test the stock price reactions of new information announcements (Boya, 2013). The information announcement is regarded as the corporate name change for this research. The semi-strong form of market efficiency states that all information that is publicly available should be reflected in the price of any given stock if the market is efficient (Boya, 2013). Thus, it is the semi-strong form of efficient markets that allow one to use the event study methodology and test the efficient market hypothesis by investigating how rapidly the prices adjust to new information (Boya, 2013). An event study allows researchers to isolate a specific event and investigate the effect it may have on stock prices. If markets are efficient, then prices should immediately change to reflect that new information (Bodie et al., 2014). It is the efficient market hypothesis that justifies the use of event studies for investigating the effect on stock prices from corporate name changes.

Signalling theory

The main idea of the signalling theory is related to the information one party reveals about itself to another party. The principle of the theory is that information is asymmetric, meaning that the party transmitting information is in an information advantage compared to the receiver of that information (Connelly, Certo, Ireland, & Reutzel, 2010). For example, managers, in general, possess more information about a company’s activities than an outsider. In other words, signalling could be a mean for companies to convey information to its stakeholders. The signalling theory implies that information in the economy is not evenly distributed, thus, making the signalling theory useful to explain the behaviour of a situation where two parties have asymmetric information (Connelly et al., 2010). A majority of the research regarding the subject of corporate name change has applied the signalling theory in order to explain the underlying reason of why companies engage in name changes (Bosch & Hirschey, 1989; Karpoff & Rankine, 1994; Lee, 2001; Mase, 2009; Morris & Reyes, 2011; Biktimirov & Durrani, 2017). Because the theory is widely adopted and supported, it will be used in this research as a foundation for explaining how corporate name changes affect stock prices. Furthermore, this theory will facilitate the discussion about why stock prices are affected by corporate name changes, and what value the information from name changes hold.

The investor mania hypothesis and The rational pricing hypothesis

As seen in the literature review, investor mania and the rational pricing hypothesis are two common concepts to consider when investigating stock market returns. The investor mania hypothesis states that securities in certain markets that are believed to generate higher future earnings will lead to overvaluation because investors are eager to be associated to the “hot market” (Lin et al., 2016). Investors purchase these securities regardless of their current valuation because they believe that they will be able to resell the security at a higher price in the future (Lin et al., 2016). Assuming the investor mania hypothesis is true, corporate name changes related to cryptocurrencies and blockchain would positively affect stock prices because of investors’ eagerness to be associated with the new technology. Because investors are eager to be associated to the new technology and believe that it will cause prices to keep rising in the future, stock prices on the market become inflated causing a higher market value compared to other securities. Under the investor mania hypothesis, managers could take advantage of positive investor sentiment to produce increases in the stock price by engaging in corporate name changes (Cooper et al., 2005).
On the other hand, the rational pricing theory differs from investor mania and suggests that any deviation in price levels for an asset will result in investors immediately trading away the profit opportunity on the asset until it trades at a rational market price (Howe, 1992). If this were true, one would see no effect on stock prices due to name changes that are following the signalling theory.
Both these hypotheses regarding the pricing of stocks have been suggested as applicable to corporate name changes in the past literature. The type of research on name changes seems to influence the verification of either hypothesis. Research on dotcom related corporate name changes on the U.S. market supports the investor mania hypothesis (Cooper et al., 2001; Cooper et al., 2005). As parallels can be seen between the dotcom boom and the current situation with cryptocurrencies and blockchain, the investor mania hypothesis should be more applicable to this specific research on blockchain and cryptocurrency related name changes. However, both hypotheses can be used to critically analyse the results of this research.

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The methodology can be defined as the paradigm approach to the research process that encapsulates the research methods and provides justification and description of the approach and methods used in the research (Collis & Hussey, 2014). In this thesis, the research is characterised by a positivist paradigm. The positivist paradigm states that a phenomenon can be explained and determined based on specific theories and what one knows is based on empirical data and causal relationships between the variables investigated (Collis & Hussey, 2014). This approach is called deductive reasoning because it begins by developing the theory that is later tested based on empirical findings. For this research on corporate name changes, the aim is to develop a relationship between the name change and the effect on the stock price. Furthermore, the focus of this research is to use existing theories to explain the stock price effect following the corporate name change. The positivist paradigm is linked to quantitative methods and data, which can be statistically tested (Collis & Hussey, 2014). An event study methodology is used in this research because it is the standard approach used when investigating the effect of corporate name changes on stock prices. In order to determine if corporate name changes generate CAR, an event study is the suitable method that can be applied. Event studies are quantitative in nature, as they are based on investigating numerical data to reach a conclusion about the research question. A qualitative method should not be applied when investigating the effect on stock prices following a corporate name change as the data collected needs to be objective and not influenced by individual opinions; the data collected on stock prices need to be tested using statistical models to be verified. Thus, this research will adopt a quantitative method, which uses statistical testing to validate the findings. Primary data are gathered in this research to investigate the topic.
The purpose of the epistemological assumption is to determine what one can accept as valid knowledge (Collis & Hussey, 2014). The positivist paradigm suggests that empirical evidence from a measurable phenomenon constitutes valid knowledge (Collis Hussey, 2014). For this thesis to be perceived as trustworthy, the quantitative method will have an objective stance, and the findings from it will only be based on cause and effect relationship between corporate name changes and stock prices. Thus, the impact of corporate name changes on stock prices should be scientifically investigated to be able to draw accurate conclusions. The quantitative approach does not explain the underlying reason which produces these possible AR following a corporate name change. However, due to the nature of the research and event studies specifically, a quantitative method should be used. Also, the objective of this research is not to determine why name changes cause AR, but rather to investigate if there is a significant relationship between corporate name changes and the price of stocks that causes AR in the market.


This research will apply an event study methodology to investigate the effect of cryptocurrency and blockchain related name changes on stock prices. In this research, the event is the corporate name change. An event study allows the researcher to isolate an event and determine the effect of that specific event on stock prices. It requires an event window, during which the effects of the event are being investigated. During this event window, the ARs are calculated and then summed together for the CAR. Then, one has to determine if the CAR is significant using a statistical test. If the CAR turns out significant, then one can make assumptions regarding the effect of the event on stock prices.


Because the number of public companies that had changed their name and could be included in the study was limited, this research includes companies from all stock exchanges worldwide to increase the sample size. The initial sample of this research consisted of 22 firms. However, due to inaccessibility of historical price data of some firms, the final sample was reduced to 11 firms. Although the sample is rather small, in comparison to that of other research on corporate name changes, the initial sample corresponds to the entire population of cryptocurrency and blockchain related corporate name changes. The sampling period of this research is not limited by a time frame because the phenomenon of corporate name changes, related to cryptocurrencies and blockchain, is relatively new. The earliest name change is from 2016. Thus, this date marks the start of the sampling period. The firms used in the sample is collected from the Nasdaq exchange, the OTC exchange, the London exchange and Canadian venture exchange. Since no other name changes related to blockchain or cryptocurrency has been found on other financial markets or that the data was incomplete, these four markets represent the whole sample.

Event window

The event window for this research will be of 11 days in total, stretching -5 days before the corporate name change announcement date, and +5 days after the announcement date. The main area of interest for this thesis is the effect of corporate name changes on stock prices around the announcement date. The possible pre-announcement and post-announcement effects are considered to a much lesser extent; thus, the event window is limited to -5 and +5 days beyond the announcement date. The event window can be defined as the difference between t1 and t2 which represents the start and end date of the event window.
The timeframe before the event must be long enough to capture the possible information leakages that can move the stock price before the actual event date. This leakage is especially inherent in name change studies, as information of the name change is released before the event date. This 11-day event window was used to capture market reactions to possible information leakages since it is possible that the information about the name change is released before the actual announcement date (Morris & Reyes, 2011; Bosch & Hirschey, 1989). However, to determine an appropriate length of the event window correctly is challenging since one major concern in event studies is the possibility of overlapping events (Cooper et al., 2001; Lin et al., 2016). The issue of overlapping events in the event window could affect the overall stock return which could make it difficult to isolate the effects of the examined event. The objective of this thesis is solely to determine the effect of corporate name changes on stock prices. Thus, the choice of a shorter event window is justified by the belief that it will limit the risk of overlapping events and other factors that may affect the price of the stock.

1. Introduction 
1.1 Background
1.2 Issue
1.3 Purpose
1.4 Research Question
1.5 Delimitations
1.6 Definitions
1.7 Disposition
2. Literature Review
2.1 Literature search
2.2 Literature review
2.3 Literature gap
2.4 Research hypotheses
3. Methodology 
3.1 Theoretical framework
3.2 Methodology
3.3 Method
3.4 Limitations
4. Empirical Findings
4.1 Table 1: Market model and Robustness test results
4.2 Graph 1: Market model and Robustness test results
4.3 Table 2: CAR of each sub-period
4.4 Table 3: Small group and Large group CAR
4.5 Graph 2: Small group and Large group CAR
5. Analysis
6. Conclusion
7. Discussion 
7.1 Future research
8. Reference list
9. Appendix
The effect of blockchain related corporate name changes on stock prices

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