The Market's Reaction to an Investment in Blockchain
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Publisher:The Ohio State University
Series/Report no.:The Ohio State University. Department of Finance Honors Theses; 2019
Blockchain is a secure, transparent digital platform used to verify transactions. Each transaction is recorded, verified into a "block", and then added to a pre-existing ledger, or "chain". In recent years many prominent companies have announced that they are investing in blockchain for applications ranging from financial transactions to supply chain solutions and data transferring. The purpose of this research is to better understand how much value this new technology can add to a business. In this paper, we investigate the effect that announcing an investment in blockchain has on the market value and stock price of a publicly-traded firm using the event study methodology first introduced by Fama, French, Jensen, & Roll (1969). We have collected a data set of fifty-three publicly-traded firms' stock prices and market capitalizations from twenty days before to twenty days after they made their announcement. We plot their returns against the S&P 500 index to see if these companies exhibited statistically significant abnormal returns greater than the market in the twenty days after their announcement. We find that smaller firms tend to exhibit higher abnormal returns than larger firms in the twenty days after announcing their association with blockchain technology. The values of micro-cap stocks (stocks with a market cap less than $100 million) increase by 136.73% on average, and that of small-cap stocks (stocks with less than 1 billion in market cap) increase by 36.64%, while larger firms like Microsoft and IBM barely see any movement in their stock prices after their announcements. Our findings suggest an investment in blockchain leads to a large, statistically significant increase in stock price and market value for smaller firms, but not for larger firms.
2nd place in the 2019 Undergraduate Research Forum in the "Emerging Technologies: Smartphones, Social Media Platforms and Beyond" category
Academic Major: Finance
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