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A Simple-But-Powerful Test for Long-Run Event Studies
Gitit Gur-Gershgoren Leeds School of Business University of Colorado ; University of New Mexico - Department of Finance, International, and Techology (FIT) Jaime F. Zender University of Colorado at Boulder - Department of Finance Eric N. Hughson Claremont McKenna College – Robert Day School of Economics and Finance October 2, 2008 Robert Day School of Economics and Finance Research Paper No. 2008-8 Abstract: Testing for long-run abnormal performance has become an increasingly important part of the finance literature. We propose a test for abnormal performance in long-run event studies using the buy and hold abnormal return (BHAR). We augment the control firm approach of Barber and Lyon (1997) by using multiple control firms to create multiple correlated BHARs for each sample firm. Using the control firm structure allows us to avoid the new listing, rebalancing, and skewness biases. Further, despite the correlation amongst the BHARs, using multiple control firms allows us to increase the power of the test beyond that of existing tests. Finally, we show that our test is well-specified in both random and nonrandom samples.
Keywords: Long-run event study methodology JEL Classifications: C15, G14 Working Paper SeriesDate posted: November 16, 2005 ; Last revised: January 11, 2010Suggested CitationContact Information
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