Event Studies Using Forward-Looking Information
21 Pages Posted: 13 Feb 2013 Last revised: 22 Jul 2014
Date Written: May 1, 2013
Traditional event study methods use regression models to estimate market models and conduct statistical tests. We present a method based on option-implied information about the distribution of stock returns and the co-movement with return factors. This method decreases the reliance on historical market information, uses more contemporaneous inputs, and avoids potential bias from standard regression approaches. We derive this method for one- and two-factor models and provide illustrations of how it compares to the historical and in-sample approaches. We discuss empirical implementation issues and situations where this forward-looking approach might be most appropriate.
Keywords: Event studies, Option-implied volatility
JEL Classification: G14
Suggested Citation: Suggested Citation