In this paper, event study methods are reviewed and summarized. In section 2, begin with discussion of one possible procedure for conducting an event study. In section 3 sets up a sample event study which will be used to illustrate the methodology. Central to an event study is the measurement of an abnormal stock return. Section 4 details the first step which is measuring the normal performance.
Section 5 follows with the necessary tools for calculating an abnormal return, making statistical inferences about these returns, and aggregating over many event observations. H0: the event has no impact on the distribution of returns is maintained in Section 4 and 5. Section 6 discusses modifying this null hypothesis to focus only on the mean of the return distribution. Section 7 presents analysis of the power of an event study.
Section 8 present nonparametric approaches to event studies which eliminate the need for parametric structure. Section 9 presents a cross-sectional 2. Procedure Briefly discuss the structure. Define the event and identify the period — the event window Determine the selection criteria for the inclusion of a given firm. (summarize some sample characteristics and note any potential biases which may have been introduced through the sample selection) !! require a measure of the abnormal return!!!!
Select a normal performance model Define the estimation window With the parameter estimates for the normal performance model, the abnormal returns can be calculated. Decide the design of the testing framework for abnormal returns. Empirical results follow the formulation of the econometric design. Ideally the empirical results will lead to insights relating to understanding the sources and causes of the effects of the event under study. Concluding comments complete the study. 3. Example