Event_Study_Methodology_1[1]

Event_Study_Methodology_1[1] - 1 & $ %...

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Unformatted text preview: 1 & $ % BMAN30190 Empirical Finance Event Study Methodology I 2 & $ % Readings: papers on course web site notes by Norman Strong your own collection of paper For citation and abstract: Econlit; Proquest For actual papers (published or working papers): 1) University of Manchester * library * electronic resources * electronic journals; 2) www.ssrn.com. 3 & $ % A brief overview of event study. What is the effect of an event on the value and other characteristics of different asset classes? How does an event affect the welfare of various company stake holders? prices (most common); volatility; trading volume ; risk. shares (most common); debts (bonds, bank loans etc) ; derivatives securities. shareholders (most common); creditors ; managers; directors ; employees; suppliers ; customers; competitors. some times more than one companies are involved in an event. event study can be short-term or long-term or both. 4 & $ % An important assumption: semi-strong market efficiency (why?). 5 & $ % An example of event 911: 6 & $ % 7 & $ % An example of event Lloyds Banking Group CEO Turnover: 8 & $ % 9 & $ % How to assess the effect of an event on company value/share price? what is the return had the event not occurred? expected return, observed return and abnormal return AR it = R it- E ( R it ) the expected return is the return had the event not occurred. it is crucial to estimate the expected return; it is crucial to choose an appropriate model to estimate the expected return. 10 & $ % Short-term Event Study Methodology The goal is to calculate the abnormal return around the event dates. 11 & $ % Market Model Approach market model: r it = + R mt + it Does this model consider systematic risk? What is the risk factor? What does beta mean? expected return: E ( r it ) = + R mt ,t TP ; abnormal return: AR it = r it- ( + R mt ) ,t TP Use regression to estimate and , in an estimation period (EP). 12 & $ % A time line illustrating important concepts and estimation process.- t t =- T t =- S t = 0 t = r EP- 6 Announcement/event Day TP- 13 & $ % some important considerations event date t = 0 ; accuracy of t is important. the length of estimation period. * Tradeoff between reliability of estimation and changing parameters ....
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Event_Study_Methodology_1[1] - 1 & $ %...

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