Characteristic-Based Benchmark Returns and Corporate Events

Forthcoming, Review of Financial Studies

104 Pages Posted: 12 Sep 2015 Last revised: 7 Mar 2018

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

W.P. Carey School of Business

Michael J. Cooper

University of Utah - David Eccles School of Business

Feng Zhang

Southern Methodist University (SMU) - Finance Department

Date Written: March 5, 2018

Abstract

We propose that fitted values from market-wide regressions of firm returns on lagged firm characteristics provide useful benchmarks for assessing whether average returns to certain stocks are abnormal. To illustrate, we study eight events where abnormal returns have been documented, including credit rating and analyst recommendation downgrades, initial and seasoned public equity offerings, mergers and acquisitions, dividend initiations, share repurchases and stock splits. We show that the apparently abnormal returns in the months after these events are substantially reduced or eliminated when compared to characteristic-based benchmarks. Characteristic-based benchmarks perform better in explaining post-event returns than recent four and five-factor models.

Keywords: abnormal returns after corporate events, predicted returns, firm characteristics

JEL Classification: G14; G30

Suggested Citation

Bessembinder, Hendrik (Hank) and Cooper, Michael J. and Zhang, Feng, Characteristic-Based Benchmark Returns and Corporate Events (March 5, 2018). Forthcoming, Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=2658849 or http://dx.doi.org/10.2139/ssrn.2658849

Hendrik (Hank) Bessembinder

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

HOME PAGE: http://isearch.asu.edu/profile/2717225

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Feng Zhang (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

HOME PAGE: http://https://sites.google.com/view/fengzhangfin

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