Download - The impacts of avian flu on the poultry-related stocks listed in the US public stock markets
The impacts of avian flu on the poultry-related
stocks listed in the US public stock markets
Wei Huang
David Bessler
Texas A&M University, College Station
September 28, 2008
Outline of Presentations
• Introduction
• Theoretical analysis
• Empirical methodologies
• Empirical results
• Conclusions
Introduction
Research Objectives
This study plans to explore the impacts of recent outbreaks of avian influenza (AI) on security values of poultry-related firms listed in the United States (US) stock market, especially the different impacts between upstream and downstream poultry-related firms, and between AI outbreaks in US and out of US.
Previous Studies
• Explore possible effects of AI outbreaks on trade, and industrial, regional or national economy (Djunaidi et al., 2007; Brown et al., 2007; Paarlberg et al., 2007)
• Study influences of BSE outbreaks on stock prices in the meat and other related industries in the United Kingdom (UK) and the United States. (Henson et al, 2002; Jin and Kim, 2008)
Theoretical Analysis:
demand - supply analysis for poultry
meat(egg)/cooked food of a producer
Demand and supply for a producer’s poultry meat(eggs) before and after AI outbreaks
outside US
Qu
D1u
D2u
Q1u Q2
u
Pu S1u
P2u
P1u
Demand and supply for a producer’s poultry meat(eggs) before and after AI outbreaks
inside US
Pu
P1u
P2u
S1u
D1u
D2u
Qu
S2u
Q2u Q1
u
Demand and supply for a producer’s poultry cooked food before and after AI outbreaks
outside USPdus
Qdus
Q2dus Q1
dus
ΔSdus
S2dus
S1dus
D1dusP1
dus
Demand and supply for a producer’s poultry cooked food before and after AI outbreaks
inside US• Price decease effect > quantity
decrease effect• Price decease effect < quantity
decrease effect
P1dus
Pdus
QdusQ1
dus Q2dus
ΔSdus
S1dus
S2dus
D1dus
Pdus
QdusQ2
dus Q1dus
ΔSdus
S2dus
S1dus
D1dusP1
dus
Summary on theoretical impacts of AI outbreaks on poultry-related stock pricesLocation of AI outbreaks Firm type Stock price behavior
Outside the country Poultry meat/eggs producers Stock price
Inside the country Poultry meat/eggs producers Stock price
Outside the country Poultry food producers Stock price
Inside the country
Poultry food producers
Input price effect > input quantity effect
Stock price
Input price effect < input quantity effect
Stock price
Empirical Methodologies:
historical decomposition
Historical decomposition• Here we write the time series stock price vector X in its m
oving average form (MAR)
• Where the vector X is written as an infinite series of orthogonalized innovations, et-i. From Equation (3), we can c
alculate a historical partition of the vector X at any date T+k into information available at time t = T and information which is revealed at period t = T+1, T+2, … , T+k. We can write the vector X at period T+k as:
)3(0
iti
it eX
)4(][1
0skT
kssskT
k
sskT eeX
How to obtain MAR for Historical decomposition?
• Through (cointegrated) Vector Autoregression form (VAR)• The VAR can be illustrated using a set of m variables each measu
red at time t; t= 1, 2, 3,…,T:
• xt' = (x1t, x2t, x3t, . . . , xmt); t= 1,2,3,…,T .
• This vector, xt , can be written as equation (1):
• K
• (1) xt = Σ α(k)xt-k + et
• k=1
• Here α(k) is an autoregressive matrix of dimension (mxm) at lag k which connects xt and xt-k. K is the maximum lag in the VAR. et is a vector residual term of dimension (mx1). The integer K is large enough such that et is white noise.
Empirical Results
Data
• Data source: Yahoo finance
• Daily adjusted closing stock prices for five firms: AFC Enterprises (AFCE), Cal-Maine Foods (CALM), Industrias Bachoco (IBA), Sanderson Farms (SAFM), and Tyson Foods (TSN)
• Study period: Jun.1, 2001 to Jan.1, 2005
Summary on Firms AFCE CALM IBA SAFM TSN
Business Type Restaurant of chicken foods
Egg producer, processor and packer
Chicken and eggproducer, processor and packer
Chicken producer, processor and packer
Chicken, pork and beef producer, processor and packer
Stock market NASDAQ NASDAQ NYSE NASDAQ NYSE
Market Cap. 250.15 M 668.44 M 1.44 B 759.37 M 6.03 B
Employees 1,820 1,536 22,983(07) 9,705 104,000
EBITDA 49.20 M 222.49 M 194.65 M 175.52 M 1.07 B
Net Income 23.10 M 133.59 M 120. 90 M 87.90 M 245.00 M
Operation location
USA, Columbia, Puerto Rico, Guam, and internationally
USA Mexico USA (SE, WE, W)
USA, export
Headquarter location
Georgia, USA
Mississippi, USA
Celaya, Mexico
Mississippi, USA
Arkansas, U.S.A.
Timeline of AI outbreaks early 2004
Timeline Country Virus Type
January 8, 2004 Vietnam H5N1
January 11, 2004 Japan H5N1
January 20, 2004 Taipei China H5N1
January 23, 2004 Thailand H5N1
January 26, 2004 Cambodia, and Hong Kong H5N1
January 27, 2004 Laos H5N1
February 2, 2004 Indonesia H5N1
February 4, 2004 China H5N1
February 11, 2004 Delaware, USA H5N2
February 19, 2004 Canada H7N2
February 23, 2004 Texas, USA H7N2
March 15, 2004 Canada
Estimated results of cointegrated VAR model
ttSP
tAFCE
TSN
SAFM
IBA
CALM
tAFCE
TSN
SAFM
IBA
CALM
P
P
P
P
P
P
P
P
P
P
P
1500
1
1
004.068.0
006.063.0
001.058.0
004.015.0
002.025.0
00.101.201.134.0004.0
009.0
012.0
004.0
006.0
008.0
Historical decompositions for Cal-Maine Foods from 8 January 2004 to 10 February 2004
Here we see information arising in CALM after January 15 is “pushing” the CALM price up; whereas information arising in AFCE after January 12 is pulling CALM price down.
Historical decompositions of Industrias Bachoco from 8 January 2004 to 10 February 2004
Here we see information in IBA after January 15 is pulling the price down; while information arising in AFCE after January 15 is pushing the price up.
Historical decompositions of Sanderson Farms from 8 January 2004 to 10 February 2004
Information arising in Sanderson farms after early February is pulling Sanderson Farms price down; whereas information arising in TSN after January 28 is puling Sanderson farms stock price up.
Historical decompositions of Tyson Foods from 8 January 2004 to 10 February 2004
Here the up-ward movement in TSN after January 23 is due to information arising in its own price (own errors are positive) and information arising in AFCE.
Historical decompositions of AFC Enterprises from 8 January 2004 to 10 February 2004
Here the upward movement in AFCE after January 13 appears to all be due to information arising in its own information shocks – no contribution from information arising first in other companies’ stock prices.
Historical decompositions of Cal-Maine Foods from 11 February 2004 to 15 March 2004
CALM appears to be exogenous over post February 11 data.
Historical decompositions of Industrias Bachoco from 11 February 2004 to 15 March 2004
IBA appears to be exogenous over post
February 11 data.
Historical decompositions of Sanderson Farms from 11 February 2004 to 15 March 2004
The downward movement in SAFM equity price after February 11 is generated by information first noted in its own equity prices (its own errors) and those of TSN. SAFM shocks later on appear to move SAFM prices upward (say after February 13). TSN information continues to have a negative affect on SAFM well into late February.
Historical decompositions of Tyson Foods from 11 February 2004 to 15 March 2004
The negative movement in TSN after February 11 appears to be self generated.
Historical decompositions of AFC Enterprises from 11 February 2004 to 15 March 2004
AFCE appears to be exogenous over post
February 11 data.
Conclusions
• the AI outbreaks in Asia raised the stock prices of Cal-Maine Foods, Sanderson Farms, Tyson Foods and AFC Enterprises;
• the AI infections in the United States dropped the stock prices of Industrias Bachoco, Sanderson Farms and Tyson Foods and raised stock prices of Cal-Maine Foods and AFC Enterprises.
• Most of empirical findings are consistent with the theoretical results. AI outbreaks appear cause volatility of firm values through its effects on international trade.
Thank You