On the Statistical Significance of Event Effects on Unsystematic Volatility
George Washington University - School of Business - Department of Finance
Jimmy E. Hillard
Louisiana State University, Baton Rouge - Department of Finance
Forthcoming in Journal of Financial Research
We develop a method for determining the significance of the effect of a certain event (stock split, corporate restructuring, change in regulation, etc.) on unsystematic volatility of asset returns. Simulations show that the suggested tests reject the true null hypothesis of no effect on volatility at appropriate levels, whereas the rejection rates of a false null hypothesis increase with the magnitude of the effect. An application of the method to corporate spin - offs reveals statistically significant and long - lasting estimated increases in unsystematic volatility of parent companies' returns.
JEL Classification: G14, G34, C10Accepted Paper Series
Date posted: June 8, 2001
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