Event Study: Advanced Machine Learning and Statistical Technique for Analyzing Sustainability in Banking Stocks

Abstract

Machine learning has grown in popularity in recent years as a method for evaluating financial text data, with promising results in stock price projection from financial news. Various research has looked at the relationship between news events and stock prices, but there is little evidence on how different sentiments (negative, neutral, and positive) of such events impact the performance of stocks or indices in comparison to benchmark indices. The goal of this paper is to analyze how a specific banking news event (such as a fraud or a bank merger) and other co-related news events (such as government policies or national elections), as well as the framing of both the news event and news-event sentiment, impair the formation of the respective bank’s stock and the banking index, i.e., Bank Nifty, in Indian stock markets over time. The task is achieved through three phases. In the first phase, we extract the banking and other co-related news events from the pool of financial news. The news events are further categorized into negative, positive, and neutral sentiments in the second phase. This study covers the third phase of our research work, where we analyze the impact of news events concerning sentiments or linguistics in the price movement of the respective bank’s stock, identified or recognized from these news events, against benchmark index Bank Nifty and the banking index against benchmark index Nifty50 for the short to long term. For the short term, we analyzed the movement of banking stock or index to benchmark index in terms of CARs (cumulative abnormal returns) surrounding the publication day (termed as D) of the news event in the event windows of (−1,D), (D,1), (−1,1), (D,5), (−5,−1), and (−5,5). For the long term, we analyzed the movement of banking stock or index to benchmark index in the event windows of (D,30), (−30,−1), (−30,30), (D,60), (−60,−1), and (−60,60). We explore the deep learning model, bidirectional encoder representations from transformers, and statistical method CAPM for this research.

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