83 we do such estimation for all firms that have a

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83. We do such estimation for all firms that have a minimum of twenty-four monthly returns following the intervention (i.e., all firms that remained public for at least twenty- four months following the month of the intervention) so that there is a significant number of monthly returns on which a regression can be based. We note that, for the few events in our sample in which the hedge fund did not file a Schedule 13D, we use the month in which the activism was made public via news searches as the month of intervention.
2015] HEDGE FUND ACTIVISM 1125 understates the unobserved variability in performance, and the reported t -stats should thus be treated as merely suggestive. 84 T ABLE 7: F IRM -L EVEL E STIMATES OF A BNORMAL R ETURNS S UBSEQUENT TO H EDGE F UND I NTERVENTION —U SING M ARKET -P RICING M ODELS This Table reports statistics on abnormal returns to target firms subsequent to hedge fund activism. For each firm targeted by a hedge fund activist, we estimate a monthly alpha for three distinct event periods. The first event period extends from three years prior to the month of the intervention through the month prior to the intervention; the second and third event periods both begin in the month following the month of the intervention through either three or five years following the month of the intervention. For the latter two event periods, we require a minimum of twenty-four monthly returns following the intervention. Panel A presents average, median, standard deviation, t -statistic, and number of estimated firm alphas for the CAPM regressions for each of the three event periods. Panel B presents these statistics for the regressions based on the Fama–French–Carhart four-factor model. Panel A: CAPM Alphas Holding Period (in Months) [-36,-1] [+1,+36] [+1,+60] Median -0.25 0.49 0.65 Average -0.17 0.52 0.44 Standard Deviation 2.73 2.99 2.62 t -stat -2.42 6.13 6.11 Observations 1478 1264 1294 Panel B: Four-Factor Alphas Holding Period (in Months) [-36,-1] [+1,+36] [+1,+60] Median -0.40 0.25 0.40 Average -0.28 0.33 0.23 Standard Deviation 2.90 3.31 2.91 t -stat -3.65 3.55 2.81 Observations 1478 1264 1294 The first column in Table 7 provides our results concerning stock returns during the three-year period preceding the intervention. Using both the CAPM pricing model and the Fama–French–Carhart four-factor pricing model, we find an alpha during this period that is negative and economically meaningful. The monthly abnormal return has a median of -0.25% and an average of -0.17% in the first pricing model and has a median of -0.40% and an average of -0.28% in the second pricing model. 84. For a discussion of this problem, see, e.g., Eugene F. Fama, Market Efficiency, Long-Term Returns, and Behavioral Finance, 49 J. Fin. Econ. 283, 295–96 (1998) [hereinafter Fama, Market Efficiency].
1126 COLUMBIA LAW REVIEW [Vol. 115:1085 These results, like those concerning operating performance obtained in Part III, are consistent with the view that hedge fund activists target underperforming companies.

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