KIC000035 - Event Studies: Returns Over Time Event Studies...

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Event Studies: Returns Over Time ........... ~,e »V' c:>'ac::>" -t 0 +t I Announcement Date Event Studies We refer to the news event day as time t = 0 t = -3 -2 -1 0 +1 +2 +3 I I I I I I I Suppose we are interested in looking at the 5 days surrounding the event: t = [-2, +2] Then we estimate (I and ~ using the 252 trading days over t = [- 255, -3) and use these to fmd the ARs Cumulative Abnonnal Return - Finally, we sum the 5 ARs to get the total market effect of the news event: Reverse Merger Abnormal Returns Event Studies How do we know if the observed return is "abnormal"? Simple approach: The Abnormal Return (AR) on 8 stock for 8 particular day can be calculated by subtracting the market' s return (R AI ) from the actual rerum (R) on the stock for that day: AR=R-R AI More Precise Approach: The abnormal return each day can also be calculated using the market model: AR= R - (a+ fJR AI ) The a fJ are usually estimated from a CAPM regression using daily return data over the preceding year. R
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000035 - Event Studies: Returns Over Time Event Studies...

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