A Re-Evaluation of Event-Study Methodology

36 Pages Posted: 10 Feb 2013

See all articles by Mounther Barakat PhD, CFA, CAIA, CIPM, FRM, CAMS

Mounther Barakat PhD, CFA, CAIA, CIPM, FRM, CAMS

New York University (NYU) - New York University Abu Dhabi; Emirates Securities and Commodities Authority

Rory L. Terry

Fort Hays State University

Date Written: February 10, 2013

Abstract

This paper provides evidence through observations and simulations that Cumulative Abnormal Return (CAR) can result in misleading inferences about market efficiency and post-event behavior. A set of 96 companies known to have multiple events and a simulation of returns with multiple post-event events are used to test three invalidating hypotheses on event-study methodology. We find that the use of artificial portfolios in event studies biases CAR downward, the increased volatility around post-event events and on the event day lowers the significance of abnormal returns, and the time series of CAR of the individual securities is larger in magnitude and higher in significance than that of the cross-sectional CAR of the portfolio.

Suggested Citation

Barakat, Phd, CFA, CAIA, CIPM, FRM, CAMS, Mounther H. and Terry, Rory L., A Re-Evaluation of Event-Study Methodology (February 10, 2013). Available at SSRN: https://ssrn.com/abstract=2214509 or http://dx.doi.org/10.2139/ssrn.2214509

Mounther H. Barakat, Phd, CFA, CAIA, CIPM, FRM, CAMS (Contact Author)

New York University (NYU) - New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Emirates Securities and Commodities Authority ( email )

Hamdan Street - AL Gaith Tower -13th Floor
P.O.Box: 33733
Abu Dhabi, 00000
United Arab Emirates

Rory L. Terry

Fort Hays State University ( email )

Hays, KS 67601
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
212
Abstract Views
1,092
Rank
260,474
PlumX Metrics