Valid Inference in Single-Firm, Single-Event Studies

American Law and Economics Review, Forthcoming

38 Pages Posted: 1 Aug 2009 Last revised: 3 Sep 2012

Jonah B. Gelbach

University of Pennsylvania Law School

Eric Helland

Claremont McKenna College - Robert Day School of Economics and Finance; RAND

Jonathan Klick

University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center

Date Written: August 10, 2012

Abstract

Single-firm event studies play an important role in both scholarship and litigation despite the general invalidity of standard inference. We use a broad cross-section of 2000-2007 CRSP data and find that the standard approach performs poorly in terms of both Type I and Type II error rates. We discuss a simple-to-use alternative, the SQ test, based on sample quantiles of the empirical distribution of pre-event fitted excess returns, which has correct asymptotic Type I error rate. Results suggest the test will be useful in studying the impact of firm-specific events such as regulation, anti-trust rulings, and corporate or securities litigation.

Keywords: event study, sample quantiles, abnormal return, bootstrap, non-parametric, securities litigation

JEL Classification: C12, C14, G00, G14, K00, K22

Suggested Citation

Gelbach, Jonah B. and Helland, Eric and Klick, Jonathan, Valid Inference in Single-Firm, Single-Event Studies (August 10, 2012). American Law and Economics Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1442222 or http://dx.doi.org/10.2139/ssrn.1442222

Jonah B. Gelbach

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Eric A. Helland

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7275 (Phone)
909-621-8243 (Fax)

RAND ( email )

1776 Main Street
Santa Monica, CA
United States

Jonathan Klick (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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