Conducting Event Studies on a Small Stock Exchange

38 Pages Posted: 29 Apr 2005

See all articles by Jan Bartholdy

Jan Bartholdy

University of Aarhus - Aarhus School of Business - Department of Business Studies

Dennis Olson

American University of Sharjah

Paula Peare

Aarhus University - Department of Finance

Date Written: April 26, 2005

Abstract

This paper analyses whether it is possible to perform an event study on a small stock exchange with thinly trade stocks. The main conclusion is that event studies can be performed provided that certain adjustments are made. First, a minimum of 25 events appears necessary to obtain acceptable size and power in statistical tests. Second, trade to trade returns should be used. Third, one should not expect to be able to consistently detect abnormal performance of less than 1%, or perhaps even much less than 2%, unless the sample contains primarily thickly traded stocks. Fourth, nonparametric tests are generally preferable to parametric tests of abnormal performance. Fifth, researchers should present separate results for thickly and thinly traded stock groups. Finally, when nonnormality, event induced variance, unknown event day, and problems of very thin trading are all considered simultaneously, no one test statistic or type of test statistic dominates the others.

Keywords: Event study methodology, thin trading

JEL Classification: G14

Suggested Citation

Bartholdy, Jan and Olson, Dennis and Peare, Paula, Conducting Event Studies on a Small Stock Exchange (April 26, 2005). Available at SSRN: https://ssrn.com/abstract=710982 or http://dx.doi.org/10.2139/ssrn.710982

Jan Bartholdy (Contact Author)

University of Aarhus - Aarhus School of Business - Department of Business Studies ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark
+4589486338 (Phone)
+4586151943 (Fax)

Dennis Olson

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Paula Peare

Aarhus University - Department of Finance ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark