FINE 434 Lecture Notes - Lecture 4: Event Study, Abnormal Return, Null Hypothesis
Document Summary
Might not be focused on economic value. Memories of past results can be hazy and biased. Ideal for discovering new patterns and developing new hypotheses. Examine reported financial results of acquirers, before and after acquisitions. Based on measures that are often used by investors. Data before and after might be non-comparable. Event study: academic study that empirically examines price responses to financial decisions. In event studies, researchers collect the data on which a sample of firms made similar announcements (e. g. , initiating new dividends). Ne(cid:454)t, the(cid:455) e(cid:454)a(cid:373)i(cid:374)e sto(cid:272)k (cid:396)etu(cid:396)(cid:374)s o(cid:374) the e(cid:448)e(cid:374)t"s a(cid:374)(cid:374)ou(cid:374)(cid:272)e(cid:373)e(cid:374)t date a(cid:374)d the da(cid:455)s i(cid:373)(cid:373)ediatel(cid:455) before and after the event, averaged across all firms in the sample. The fact that there is a sample of firms/events allows one to perform a statistical analysis of the magnitude and determinants of stock price reactions. Relies on strong assumptions about stock markets (i. e. , semi-strong form efficiency). Scientific approach: formulating and testing a null hypothesis.
