Event_Study_Methodology_2[1]

Event_Study_Methodology_2[1] - $ 1 BMAN30190 Empirical...

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1 & $ % BMAN30190 Empirical Finance Event Study Methodology II
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2 & $ % In this set of slides, I discuss several issues that are relevant and important in event studies. You should be aware of this issues when applying event study methodologies, and know how to address them.
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3 & $ % Issues with Short-term Event Studies Some times, there is no return data before the event. use historical-mean adjusted return use market adjusted return choose an EP that is after the event (Gregory, 1997)
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4 & $ % The Thin Trading Problem / the non-synchronous Trading Problem thin trading occurs when assets of the event firm is not continuously traded. * There is no trading on some days. * Within one day, trading does not occur all the time. consequence: parameter estimates are biased. detect thin-trading problem: 1) a large number of zero returns in the time series; 2) low trading volume.
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5 & $ % How to mitigate the impact of the thin trading problem? * use data of lower frequency, e.g. weekly, biweekly etc. * Scholes-Williams method (Scholes and Williams, 1977) ˆ β SW = ˆ β t - 1 + ˆ β t + ˆ β t +1 1 + 2ˆ ρ m ˆ α SW = 1 t 2 - t 1 - 1 t 2 - 1 X τ = t 1 +1 r τ - ˆ β SW 1 t 2 - t 1 - 1
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