Event Study Analysis: Correctly Measuring the Dollar Impact of an Event

13 Pages Posted: 20 Apr 2011

See all articles by Atanu Saha

Atanu Saha

Compass Lexecon

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: April 18, 2011

Abstract

Using the traditional event study approach in the context of securities litigation, the determination of the "materiality" of a firm disclosure hinges on the statistical significance of the abnormal share price change (i.e., return) on the disclosure day. To estimate per share damages, the abnormal return is then transformed to an abnormal dollar impact. It is often assumed that if the abnormal return on a disclosure day is statistically significant, so is the abnormal dollar effect. We demonstrate - first analytically and then through an empirical example - that need not be the case. We derive the proper t-statistic if one wishes to determine the statistical significance of an abnormal dollar effect. This has obvious implications for liability and damages in securities litigation matters.

Keywords: 10b-5 damages, materiality, securities litigation, securities damages, event study analysis, t-statistic

JEL Classification: G14, K22, K42

Suggested Citation

Saha, Atanu and Ferrell, Allen, Event Study Analysis: Correctly Measuring the Dollar Impact of an Event (April 18, 2011). Harvard Law and Economics Discussion Paper, Available at SSRN: https://ssrn.com/abstract=1814236 or http://dx.doi.org/10.2139/ssrn.1814236

Atanu Saha

Compass Lexecon ( email )

New York, NY
United States

Allen Ferrell (Contact Author)

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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