FINC 727: Corporate transactions and business valuation
Professor Robert Hansen
Assignment 6. Salomon Scandal
Your group should examine the daily "abnormal returns" to Salomon's common stock
from July 15, 1991 through December 31, 1991, to include their computation for specific
events. During this period Salomon was engaged in scandal, which led to a strategy of
significant reorganization designed to salvage the company from its demise.
Data for this problem is located on the Class web page. There are two price series; the
common stock price for Salomon Inc, and the daily close for the S&P 40 Financial Index,
hereafter the "Market Index." Shares outstanding for Salomon are
Abnormal returns should be calculated three ways. The first two use the "mean adjusted"
approach and a comparison period mean return for Salomon which acts as the "expected
return" component in the abnormal return computation. For one of these comparison
periods, use the returns from April 15, 1991 through July 14, 1991. For the second
comparison period use the raw returns from January 1, 1992 through March 31, 1992.
The third approach for computing abnormal returns should use the Market Index to
compute "market adjusted" daily abnormal returns.
Plot the Cumulative Abnormal Return
for each of the three abnormal return
series in the same diagram, from July 15, 1991 to December 31, 1991.
contains key announcements taken from the Wall Street Journal
occurred during the period of study. All announcements appeared in the Wall Street
and the date indicated by the announcement is the day the announcement was
reported by the Wall Street Journal
. In a separate diagram, for each announcement,
report the "two-day" abnormal return realized on Salomon's common, using all three
abnormal return computation methods.