Nonparametric Rank Tests for Event Studies

59 Pages Posted: 25 Aug 2008 Last revised: 19 Aug 2014

See all articles by James W. Kolari

James W. Kolari

Texas A&M University - Department of Finance

Seppo Pynnonen

University of Vaasa, Department of Mathematics and Statistics

Date Written: October 4, 2010

Abstract

In event study analyses of abnormal returns on a single day, Corrado's (1989) nonparametric rank test and its modification in Corrado and Zivney (1992) have good empirical power properties, but problems arise in their application to cumulative abnormal returns (CARs). This paper proposes a generalized rank (GRANK) testing procedure that can be used for testing both single day and cumulative abnormal returns. Asymptotic distributions of the associated test statistics are derived and empirical properties of the test statistics are studied with simulations of CRSP returns. The results show that the proposed GRANK procedure outperforms previous rank tests of CARs and is robust to abnormal return serial correlation and event-induced volatility. Moreover, the GRANK procedure exhibits superior empirical power relative to parametric tests by Patell (1976) and Boehmer, Musumeci, and Poulsen (1991).

Keywords: Rank test, Abnormal returns, Event study, Standardized returns

JEL Classification: G14, C10, C15

Suggested Citation

Kolari, James W. and Pynnonen, Seppo, Nonparametric Rank Tests for Event Studies (October 4, 2010). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1254022 or http://dx.doi.org/10.2139/ssrn.1254022

James W. Kolari

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Seppo Pynnonen (Contact Author)

University of Vaasa, Department of Mathematics and Statistics ( email )

Wolffintie 34
65200 Vaasa
Finland
+358-21-449 8311 (Phone)

HOME PAGE: http://www.uva.fi/~sjp/

Register to save articles to
your library

Register

Paper statistics

Downloads
3,743
rank
2,419
Abstract Views
11,828
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information