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The Stock Market Reaction to the
Resource Super Profit Tax
Sinclair Davidson
Motivation
• In early May the Federal government announced a new mining tax.
• This has caused some serious debate in Australia.
• Former PM Kevin Rudd made the argument
If you look at what’s happening generally with resource stocks over
the last month, they’ve basically outperformed the general exchange
here in Australia, they’ve outperformed resource stocks around the
world.
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Impact of the RSPT
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Impact of the RSPT
•
Source: AFR 1 June 2010
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Stock Market Impact
• Event Studies are a classic research tool developed in the Finance
discipline
• They allow researchers to control for confounding effects
• They are robust with high power to determine various effects
–Statistically sound
–Randomisation adds statistical power
• They can provide graphic evidence
• They can be incorporated with other statistical techniques such a OLS
regression
• Allow great flexibility as the choices about inputs to the test
–Economic
–Statistical
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Stock Market Impact
• The structure of an event study
–Define an event
–Define the event window
–Define the data requirements
–Calculate abnormal returns – calculate the expected returns
–Conduct empirical tests
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Stock Market Impact
• Abnormal returns calculated by the market model
–Market Model
–Rit = β0 + β1Rmt + εit
–ARit = Rit – (β0 + β1Rmt)
• Once that has been performed per stock, then average abnormal
returns are calculated; AARt = 1/n∑ARit
–In event studies, the Null Hypothesis is that AARt = 0
–If we expect good news, then AARt > 0
–If we expect bad news, then AARt < 0
–When testing hypotheses we need to have standard errors
–Pooled Time series estimate of ARit
–Cross section estimate of ARit for each t
• Cumulative abnormal Returns
–CAR = ∑AARit
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Stock Market Impact
• To gauge the international impact of the announcement of the RSPT I
downloaded FTSE data for Global mining and Australian mining.
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Stock Market Impact
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Stock Market Impact
• Daily data have volatility bunching that must be modelled using a GARCH
process.
• I estimate the following model
Ri,t = αi,t + βi,tRm,t + μi,tRm,tRSPT + εi,t
ht = α0 + α1ε2t-1 + β1ht-1
• I calculate cumulative abnormal returns.
• This is a classic ‘bad news’ graphic.
• I repeat that exercise for Australian data using the ASX 200 and ASX Mining
Indices.
• Again this is a classic ‘bad news’ graphic.
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Stock Market Impact
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Stock Market Impact
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Conclusion
• Despite various claims being made
– The RSPT was theoretically flawed
– The RSPT was not well received by markets
• The former PMs claim
If you look at what’s happening generally with resource stocks over
the last month, they’ve basically outperformed the general exchange
here in Australia, they’ve outperformed resource stocks around the
world.
was not true.
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