Investors’ Reaction to Apple’s Racial Equity and Justice Initiative

Student: Dylan Vargas

Faculty Mentor: Robert Eyler

Economics

College of Science, Technology, and Business

Public equity markets are constantly reacting to new information, integrating common investors' evaluation of corporations. These companies, representing some of the world’s largest businesses, are re-valued daily, reflecting corporate news and economic data into their share price. Yet, as businesses have shifted toward social goals, are these changes reflected in a firm’s share pricing? In the early 2020s, Apple made a move toward social goals, announcing their Racial Equity and Justice Initiative. These corporate policies sought to promote some public benefit beyond shareholder interests. Therefore, if markets incorporate all public information in their prices, shouldn't this announcement have a measurable impact on Apple’s share prices? To answer this question, the methodology of event studies was employed. This method involves constructing an event timeline where we compare daily price changes to an expected price change. The study used the difference between the daily stock return and the risk-adjusted return, based upon the NASDAQ, which represented the abnormal returns. Furthermore, by calculating cumulative abnormal returns, a summation of returns from a certain period, we can visually graph the market’s reaction to the announcement. By utilizing this framework, it should be possible to determine if this event affected the market’s evaluation of the firm. Currently, the data has shown that this announcement had a measurable impact on the stock’s pricing, correlating with the event day’s share price being one standard deviation beyond the mean. However, its effects quickly disappeared, likely being affected by another earlier event.