what are the three stages of an event study
- Identify the event of interest and, in particular, the timing of the event − Sources: Thomson One.com, Factiva
− Some uncertainty may be unavoidable - Calculate normal stock returns using a benchmark model
- Calculate and analyze abnormal returns around the event date
describe Event study
Step 1: Identify the event
In general, an event is an (observed) decision or announcement of the firm’s management
* For example, stock splits, dividend initiations, stock repurchases, mergers and takeovers, earnings announcements, …
* The event date is most often the announcement date. E.g. stock prices react when a merger is announced, rather than when the merger is completed
* The periods prior to or after the event may also be of interest
A common procedure is to pick the date of the first announcement on Factiva, SEC Edgar, or SDC Platinum/Thomon One.com as the event date
* But some uncertainty about the event date is sometimes unavoidable (e.g. announcements made after stock market closure)
describe Event study
Step 2: Calculate normal stock returns
- Specify an estimation window:
− Period over which you estimate the normal returns, using one of the three
benchmark models specified below
− Normally before event period, sometimes after
− Generally, event period is excluded from estimation period.
− For example, from trading day – 240 to trading day – 41 - Choose a benchmark model:
− Mean adjusted return method
− Market adjusted return method − Market model method
