The Advantages of Using Quarterly Returns for Long-Term Event Studies

Posted: 2 Aug 2010

See all articles by Ronald Bremer

Ronald Bremer

Texas Tech University

Bonnie Buchanan

Surrey Business School, University of Surrey

Philip C. English

American University - Kogod School of Business; Fox School of Business, Temple University

Date Written: July 29, 2010

Abstract

The main purpose of this paper is to explore the low power and methodological problems as they continue to plague long-term event study research. We investigate long-term tests (up to 2 years) performed on non-overlapping quarterly time frames as a solution. Components of commonly employed characteristic-based matching processes are examined as the source of low power. Single “best” matching firms don’t statistically match their event firms at the time of the event and are vastly inferior to matching with portfolios. A modified market mean method which uses the securities continuously traded during the calendar event period, is shown to be well specified, have comparable power and avoid the costs of more complex matching methodologies. Contrary to popular perception, increased power derives from the decreased variance in comparison returns; not from an increased covariance between comparison firm returns and event firm returns. The tests are easy to implement, well-specified and have higher power when based on quarterly versus monthly data.

Keywords: Long-horizon performance studies, matching characteristics

JEL Classification: C10, C15, G12, G14

Suggested Citation

Bremer, Ronald and Buchanan, Bonnie and English, Philip C., The Advantages of Using Quarterly Returns for Long-Term Event Studies (July 29, 2010). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1650691

Ronald Bremer

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Bonnie Buchanan (Contact Author)

Surrey Business School, University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Philip C. English

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-2745 (Phone)

Fox School of Business, Temple University ( email )

Philadelphia, PA 19122
United States
2152048141 (Phone)

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