Econometrics of Event Studies
“Econometrics of Event Studies”
S. P Khotari and Jerold B. Warner
Forthcoming in B. Espen Eckbo (ed.), Handbook of Corporate Finance: Empirical Corporate Finance, Volume A (Handbooks in Finance Series, Elsevier/North-Holland), Ch. 1, 2006
Econometrics of Event Studies
S.P. Kothari Sloan School of Management, MIT
Jerold B. Warner William E. Simon Graduate School of Business Administration University of Rochester
May 19, 2006
Key words: Event study, abnormal returns, short-horizon tests, long-horizon tests, crosssectional tests, risk adjustment
This article will appear in the Handbook of Corporate Finance: Empirical Corporate Finance (Elsevier/North-Holland), which is edited by B. Espen Eckbo. We thank Espen Eckbo, Jon Lewellen, Adam Kolasinski, and Jay Ritter for insightful comments, and Irfan Safdar and Alan Wancier for research assistance.
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ABSTRACT
The number of published event studies exceeds 500, and the literature continues to grow. We provide an overview of event study methods. Short-horizon methods are quite reliable. While long-horizon methods have improved, serious limitations remain. A challenge is to continue to refine long-horizon methods. We present new evidence illustrating that properties of event study methods can vary by calendar time period and can depend on event sample firm characteristics such as volatility. This reinforces the importance of using stratified samples to examine event study statistical properties.
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Table of Contents 1. Introduction and Background 2. The Event Study Literature 2.1 The stock and flow of event studies 2.2 Changes in event study methods: the big picture 3. Characterizing Event Study Methods 3.1 An event study: the model 3.2 Statistical and economic hypotheses 3.3 Sampling distributions and test statistics 3.4 Criteria for “reliable” event study tests 3.5 Determining specification and power 3.6 A quick survey of our knowledge 3.7 Cross-sectional tests 4. Long-Horizon Event
S. P Khotari and Jerold B. Warner
Forthcoming in B. Espen Eckbo (ed.), Handbook of Corporate Finance: Empirical Corporate Finance, Volume A (Handbooks in Finance Series, Elsevier/North-Holland), Ch. 1, 2006
Econometrics of Event Studies
S.P. Kothari Sloan School of Management, MIT
Jerold B. Warner William E. Simon Graduate School of Business Administration University of Rochester
May 19, 2006
Key words: Event study, abnormal returns, short-horizon tests, long-horizon tests, crosssectional tests, risk adjustment
This article will appear in the Handbook of Corporate Finance: Empirical Corporate Finance (Elsevier/North-Holland), which is edited by B. Espen Eckbo. We thank Espen Eckbo, Jon Lewellen, Adam Kolasinski, and Jay Ritter for insightful comments, and Irfan Safdar and Alan Wancier for research assistance.
2
ABSTRACT
The number of published event studies exceeds 500, and the literature continues to grow. We provide an overview of event study methods. Short-horizon methods are quite reliable. While long-horizon methods have improved, serious limitations remain. A challenge is to continue to refine long-horizon methods. We present new evidence illustrating that properties of event study methods can vary by calendar time period and can depend on event sample firm characteristics such as volatility. This reinforces the importance of using stratified samples to examine event study statistical properties.
3
Table of Contents 1. Introduction and Background 2. The Event Study Literature 2.1 The stock and flow of event studies 2.2 Changes in event study methods: the big picture 3. Characterizing Event Study Methods 3.1 An event study: the model 3.2 Statistical and economic hypotheses 3.3 Sampling distributions and test statistics 3.4 Criteria for “reliable” event study tests 3.5 Determining specification and power 3.6 A quick survey of our knowledge 3.7 Cross-sectional tests 4. Long-Horizon Event