A Simple-But-Powerful Test for Long-Run Event Studies
Israel Securities Authority
Jaime F. Zender
University of Colorado at Boulder - Department of Finance
Eric N. Hughson
Claremont Colleges - Robert Day School of Economics and Finance
October 2, 2008
Robert Day School of Economics and Finance Research Paper No. 2008-8
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.
Number of Pages in PDF File: 44
Keywords: Long-run event study methodology
JEL Classification: C15, G14
Date posted: November 16, 2005
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.422 seconds