COMMERCE 4AF3 Lecture 4: Calculating stock return
6 Feb 2019
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Document Summary
Need to use compound method to calculate stock return. P3 = stock price at month 3 and p0 is price of stock at the beginning of the period. Average of abnormal stock returns for m months with m stocks. Shows cumulative of abnormal returns for the portfolio over multiple years x-axis represent # of months. Month 0 = earnings announcement date of firms. Negative #"s are years before earnings announcement and positive are years after the earning announcement y-axis represents cumulative stock returns. The total sample" line which represents the average for the industry portfolio. When the variables are below the x-axis, it means those are bad news" firms. If variable 1, 2, 3 are positive, it means the earnings announcement was good news". Conclusion; stock markets can react to earnings announcements and they react to abnormal portion of earning announcements depending on whether it was good/bad news.
