The Effect of New Product Launch on Share Returns

in Smartphone Industry
Instructor: Dr. Kam-Ming Wan
CHEN Shiqi 12130967D | XUE Yang 12131071D

Structure of Research
Trend Analysis

Pattern of stock abnormal return change around product launch day.

Factors Analysis

Factors influencing the stock returns around launch day.

Leadership Effect
Case study on Apples leaders Jobs and Cook.

Stage 1 - Trend Analysis

Hypothesis
Methodology and data
Results and Interpretation

Stage 1-Trend Analysis

Hypothesis
Hypothesis A: abnormal returns will increase steadily within a
short period and reach its peak just upon the product launch
day, and then drop after the launch day.

Hypothesis B: the release of product news and corporate

news influence stock returns around launch date.

Stage 1-Trend Analysis

Methodology and data
Procedure:
1) searched for the dates of product launch events
2) collected the closing price of the transaction day from 3
days before to 3 days after the event date.
3) calculate the abnormal return (AR) and cumulative
abnormal return (CAR) based on the formula below:

ARi,t =Ri,t Rmi,t

T2

CAR[T1, T2] = (AR)

T1

Stage 1-Trend Analysis

Methodology and data
South Korea
USA

Japan

Mainland China

*Market share: more than 60% (International Data Corporation, 2015)

Data source: Bloomberg, Factiva and Yahoo Finance.

Event window: (-3, 3)

Taiwan

TABLE 1: Daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR)
TABLE 1: Daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR)

Stage 1 Trend Analysis

Results and Interpretation

TABLE 1: Daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR)
***, **, and * represent significance at the 0.01, 0.05, and 0.10 level, respectively

-3
N
Mean (AR)
Std. Error (AR)
Mean (CAR)
Std. Error (CAR)

42
0.12%
0.3059
0.12%
0.3984

-2

Day Relativeto Launch Day

-1
0
1

42
42
0.45% 0.73%**
0.9340
2.6800
0.57%** 1.30%***
2.3508
3.9466

42
-0.63%
-0.2982
0.67%*
1.4868

42
-0.53%
-0.8146
0.14%
0.3197

42
-0.27%
0.2353
-0.13%
-0.2594

42
-0.42%*
-1.5695
-0.56%
-1.0288

TABLE 1: Daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR)
TABLE 1: DailyTABLE
Abnormal
2. Comparison
Returns (AR)
with
and
Findings
Cumulative
in Extant
Abnormal
StudyReturns (CAR)

Stage 1 Trend Analysis

Results and Interpretation

TABLE 2. Comparison with Findings in Extant Study
Data for 1975-84 Average is adapted from The impact of new product
introductions on the market value of firms, byChaney, P. K.,
Devinney, T. M., & Winer, R. S.,1991, Journal of Business , 573-610.
Daily Abnormal Return
-3
-2
-1
0
1
2
3

1975-84 Average
0.05%
0.15%
0.40%
0.22%
0.12%
-0.05%
-0.06%

Event Study
0.12%
0.45%
0.73%
-0.63%
-0.53%
-0.27%
-0.42%

FIGURE 1. Abnormal Returns Around the Launch Date

Stage 1 Trend Analysis

Results and Interpretation

FIGURE 1. Abnormal Returns Around the Launch Date

FIGURE 1. Abnormal Returns Around the Launch Date

Stage 1 Trend Analysis

Results and Interpretation

FIGURE 2. Cumulative Abnormal Returns Around the Launch Date

Take a long position 3 days before the product launch and sell the stocks one day before the launch.
Short sell the stocks one
day before
the launch
and take
a short
position
for three days.
FIGURE
1. Abnormal
Returns
Around
the Launch
Date

Stage 1 Trend Analysis

Results and Interpretation

Trading Strategy:
Take a long position 3 days before the product launch and sell the stocks
one day before the launch.
Short sell the stocks one day before the launch and take a short position
for three days.

FIGURE 1. Abnormal Returns Around the Launch Date

Stage 1 Trend Analysis

Results and Interpretation

FIGURE 3. Abnormal Returns and Cumulative Abnormal Returns Around the Launch Date for Apple

Take a long position 3 days before the product launch and sell the stocks one day before the launch.
Short sell the stocks one
day before
the launch
and take
a short
position
for three days.
FIGURE
1. Abnormal
Returns
Around
the Launch
Date

Stage 1 Trend Analysis

Results and Interpretation

Trading Strategy for Apple:

Trading Strategy: Short sell Apples stocks one day before the new
product launch, and take a short position for three days.

FIGURE 1. Abnormal Returns Around the Launch Date

Stage 1 Trend Analysis

Results and Interpretation

FIGURE 4. Abnormal Returns and Cumulative Abnormal Returns Around the Launch Date for Samsung

Take a long position 3 days before the product launch and sell the stocks one day before the launch.
Short sell the stocks one
day before
the launch
and take
a short
position
for three days.
FIGURE
1. Abnormal
Returns
Around
the Launch
Date

Stage 1 Trend Analysis

Results and Interpretation

Trading Strategy for Samsung:

Trading strategy: Take a long position three days before the new
product launch and sell the stocks one day before the launch.

Stage 2Factor Analysis

Methodology
Interpretation

Stage 2 Factor Analysis

Regression Model

ABNORMAL_RETURNit = 0 + 1TOTAL_NEWSit +
2PRODUCT_NEWSit + 3POSITIVE_PRODUCT_NEWSit +
4NEGATIVE_PRODUCT_NEWSit

Stage 2 - Factor Analysis

Sampling
Database: Factiva to sample news
Rationale: Media Biases & Different Reporting Channels

Media Sources
Business Wire, the New York Times, the Wall Street Journal, PR
Newswire
Electronics Newsweekly, Postmedia Breaking News, Korea Times, PR
Newswire, Business Wire
China Times Real Time News, Central News Agency, PR Newswire and
Business Wire
Business Wire, the New York Times, the Wall Street Journal, PR
Newswire
Business Wire, Electronics Newsweekly,Telecommunications weekly, PR
Newswire, Reuters, China News Service-China Business & Economic
News
Business Wire, the New York Times, the Wall Street Journal, PR
Newswire

Stage 2 - Factor Analysis

Results
TABLE 3: Regression Results
The dependent variable is ABNORMAL_RETURN. t-statistics are in parentheses. ***, **, * and + represent
significance at the 0.01, 0.05, 0.10 a nd 0.15 levels, respectively

Variable
TOTAL_NEWS
PRODUCT_NEWS

-6.912E-07 8.831E-06 -9.957E-05

(-.007)
(.233)
(-.328)
.001
-3.013E-05 3.56E-04
(1.054)
(-.018)
(.135)

POSITIVE_PRODUCT_NEWS

.004
(3.937)

***

.008
(7.786)

***

.006
(1.794)

NEGATIVE_PRODUCT_NEWS

-.013
(-11.550)

***

-.007
(-8.800)

***

.739

.799

R2
F

45.983

***

64.717

***

-2.10E-04
(-.413)
1.50E-04
(.072)
**

.001
(.380)
-.001
(-.423)

-.001
(-.440)
.007 +
(1.612)

***

-.011
(-3.694)

-.014
(-2.189)

.012
(1.848)
-.006
(-.887)

.684

.395

.455

.645

***

16.199

***

4.892

***

.014
(3.536)

.007
(2.243)
-.003
(-.809)

**

6.258

***

7.265

***

Stage 2 - Factor Analysis

Results
TABLE 4: Economic Effect

TOTAL_NEWS
PRODUCT_NEWS
POSITIVE_PRODUCT_NEWS
NEGATIVE_PRODUCT_NEWS

0.00%
0.33%
0.90%
-1.08%

0.02%
-0.02%
0.75%
0.74%

-0.07%
0.08%
0.62%
-0.75%

-0.02%
0.04%
0.74%
-0.20%

0.35%
-0.22%
0.40%
-0.68%

Economic Impact of Variable=Coefficients (from regression)* Average Number of News

-0.59%
2.47%
0.63%
-0.48%

Stage 2 - Factor Analysis

Results
FIGURE 5
Total/Product News around Product Launch
Total News

Product News

27

20
15

14

12
9

6
3

2
-3

-2

6
3

-1

+1

+2

2
+3

ADD
StageYOUR
2 - Factor
TITLE
Analysis
HERE
Interpretation
1) Financial incentives to leak information before product launch
Total/Product News around Product Launch
Total News

-- Trend of Total Product News highly correlated with the change of stock returns
before the new product launch day

Product News

27

-- Strong motivation to strategically leak news to increase stock returns

before the launch.

20
15

14

12
7

-3

-2

3
-1

-- Favorable atmosphere for the new product launch to attract more

potential customers to follow and purchase the new products.

+1

+2

2
+3

ADD
StageYOUR
2 - Factor
TITLE
Analysis
HERE
Interpretation
2) Better products attract more news coverage
Average Number of Total News
22

23

-- Better products attract more media exposure and create greater market
expectation.
-- For Apple and Samsung, customers and investors pay more attention to the
product itself. Quality matters.
7

APPLE SAMSUNG SONY

LG

HTC

ZTE

ADD
StageYOUR
2 - Factor
TITLE
Analysis
HERE
Interpretation
3) Investors' sensitivity to the positive/negative news varies by company size
Variable
POSITIVE_
PRODUCT_NEWS
NEGATIVE_
PRODUCT_NEWS

.004

***

.008

***

-.007

-.013

***

.006

.007

***

-.011

**

***

-.003

.014

***

.012

**

-.006

-.014

-- The market and investors are more sensitive to the negative news of big
companies (Apple, Samsung and Sony)
-- For relatively smaller companies like LG, HTC and ZTE, the positive effect
is more potent to drive up share returns.

Stage 3 Leadership Effect

Methodology
Interpretation

Stage 3 - Leadership Effect

Case Study on Apple

ABNORMAL_RETURNit = 0 + 1TOTAL_NEWSit +
2PRODUCT_NEWSit + 3POSITIVE_PRODUCT_NEWSit +
4NEGATIVE_PRODUCT_NEWSit + 5LEADERSHIP_JOBSit +
6LEADERSHIP_COOKit

Stage 3 - Leadership Effect

Results
TABLE 5: Regression Results - Leadership
Variable
TOTAL_NEWS
PRODUCT_NEWS
POSITIVE_PRODUCT_NEWS
NEGATIVE_PRODUCT_NEWS
LEADERSHIP_J OBS
LEADERSHIP_COOK

R2
F

Apple
4.957E-05
(.611)
4.08E-04
(1.026)
.002**
(2.521)
-.010***
(-10.289 )
.014***
(3.950)
-.003
(.414)

Apple_Tim Cook
1.31E-04
(1.473)
-.001 +
(-1.567)
.004***
(2.921)

.017
(1.832)
.005
(.604)

.012
(2.855)
-.003
(-.582 )

.829

.825

.877

51.042

***

***

-.009
(-3.957 )
*

22.045

***

Apple_SteveJ obs
-3.979E-05
(-.223)
.002***
(3.066)
.001
(1.082)
***

-.012
(-9.165 )
***

33.375

***

Stage 3 - Leadership Effect

Results
TABLE 6
Cooks period

Jobs period

Product news

-.001 +

.002***

Positive product news

.004***

.001

Negative product news

-.009***

-.012***

1) Strong Leadership makes products more appealing

Jobs 'characteristics and charisma has positive impact on product
In Cooks period, bias towards product (+/- comments) contribute to share returns

Stage 3 - Leadership Effect

Results
TABLE 7
Cooks period

Jobs period

Leadership_Jobs

.017*

.012***

Leadership_Cook

.005

-.003

2) Jobs effect extents to Cooks period

Peoples commemoration to Steve Jobs still has a positive effect on share returns during Cooks period

Conclusion

Trend Analysis

Leadership Effect

Factor Analysis

Thank You

Group 92
CHEN Shiqi 12130967D
XUE Yang 12131071D