The impact of IMO 2020 regulations announcement on Greek shipping companies' stock prices

Abstract

This thesis seeks to explore the effect of the announcement of IMO 2020 regulations, concerning the limit on Sulphur Oxides emission, on Greek shipping companies’ stock value. The new regulations imposed by the IMO were announced on the 28th of October 2020. This date was a turning point for the industry as many conflicts have risen concerning managerial and financial decisions that had to be done to cope with the new era, as well as investors had to re-study and investigate the choice of their investments portfolio. The aim of this research is to identify numerically, based on retrieved data and using the event study methodology based on market efficiency hypothesis, the effect of this announcement on shipping companies’ stock returns and risk volatility in reference to the risk-adjusted returns market model. The research was tackled using two approaches. The first approach was the study of stock’s returns in order to test for significant abnormal returns surrounding the announcement date indicating a correlation. The second approach was observing the Betas of stocks surrounding the announcement date and comparing them to dates further from the event. This is known as the market risk approach. The results we have reached in the first approach show the existence of abnormal returns surrounding the announcement date of IMO 2020, however have been statistically proven to be insignificant, thus we cannot deduce a positive correlation. Furthermore, the results showcased by the market risk approach also portrays an increase in the betas of the stocks surrounding the announcement date, but also have been seen statistically insignificant in most cases. In conclusion, even though the results we obtained have been tested as insignificant, we draw attention to the unusual behavior of the stocks on the days surrounding the announcement date. We can say that these observations are attractive for further studies conducted in a different methodology or a different sample might lead to other results. What is definite is that regulations such as the ones issued in 2020 by the IMO can shake the shipping industry and reshape it. Investors, shipping firms and shipowners must always be alert of any environmental or any related announcement that can be issued in the future that might impact the sector.