Quality Of Information Environment For The Canadian Imperial Bank Of Commerce

1729 WordsNov 7, 20147 Pages
1.0 Introduction and Methodology The objective of this report is to examine and compare the quality of information environment for the Canadian Imperial Bank of Commerce (CIBC) and the Bank of Nova Scotia (BNS). The analysis is performed from three perspectives: earnings response coefficient (ERC), analysts forecast consensus, and quality of Management Discussions & Analysis (MD&A). First, research was conducted for a total of 8 quarters (Q4 2012 to Q3 2014, Exhibit 0) based on publicly available information. The ERC analysis requires each bank’s alpha and beta, estimated by regressing the CAPM Model (Exhibit 1) using a period of 200 trading days before Q4 2012, which are then used to estimate the expected daily return for each equity in a 7-day window (day -3 to day +3) around each earnings announcement date (Exhibit 2). Each quarter’s cumulative abnormal returns, is regressed over unexpected earnings to arrive at the ERC (Exhibit 3). Secondly, forecast error, a measure of analyst accuracy, was determined by unexpected earnings and calculated as the difference between actual earnings per share (EPS) and estimated EPS divided by the stock price three days prior to the earnings announcement. In addition to mean and the median of these errors, standard deviation (SD) was used as a measure of volatility, for both the consensus among analysts revising recommendations and the relative number of analysts agreeing/disagreeing (numeric rating of 1 for sell and 5 for strong buy).
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