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Firm Investments Analysis

This paper explores the tentativeness of specific company announcements of short sale, particularly the decision to execute a short sale within a relatively short time-frame. To do so, it first examines how the announcements affect both short-term and long-term share price fluctuations in the underlying shares. Next, it examines how announcements of potential short sales are used by institutional investors to reduce their exposure to risk, and finally, it concludes that firms may be using announcements of potential short sale transactions as a strategy to implement the share price manipulation. The paper also examines the potential for derivative instruments to contain information regarding such announcements and attempts to manipulate the price of the underlying stock through changes in derivative pricing strategies.

To test this hypothesis, we examine two alternative hypotheses: (I) That announcements of potential short selling transactions will cause stock prices to drop and (ii) that there is a correlation between the price drop and the news of potential short sale transactions. We use a unique data set to test these hypotheses. This data set comes from the years 2021 to 2021. Using this data set, we construct a spreadsheet that contains all of the firm investments, including both publicly traded and not-traded firm investments. We then investigate the effect of an unannounced announcement on the price of the underlying stock using a least square curve analysis.

The second hypothesis predicts that public firms will tend to execute misvalued transactions. To test this hypothesis, we again use our spreadsheet to calculate both the actual realized value of the assets as well as the expected value after appreciation. Because we know that announcements of potential short selling transactions will affect both the realized and expected values of firm investments, we then calculate an effect of misvaluation. We determine if an unannounced transaction will significantly affect the price of an underlying share using both a least square and logistic regression analysis.

The third hypothesis predicts that stock price fluctuations will be significantly impacted by misvaluations that are announced prior to the start of trading. For our purpose, we only examine publicly traded stocks. In addition, we also investigate the effect of an announcement of an impending bankruptcy which may affect the market value of stock.

Finally, we investigate the relationship between news of investment proposals and firm investments. We constructed a spreadsheet using the shareholder’s equity and firm investments as the dependent variable. We then estimate the effect of an investment proposal by estimating the difference in value of the total tangible assets owned and the current value of the firm investments. We then determine if a company proposal will indeed reduce the value of the firm investments.

These three techniques provide useful insights into the relationship between stock price fluctuations and firm performance. We developed these techniques based on information readily available to investment managers and other business leaders. However, these analyses should not be used to make investment decisions. We encourage you to research the literature and use your own discretion when making investment decisions. The analysis presented here is only one of many potential factors affecting investment decisions.