A Robust and Powerful Test of Abnormal Stock Returns in Long-Horizon Event Studies

64 Pages Posted: 11 Jul 2013 Last revised: 5 Oct 2017

See all articles by Anupam Dutta

Anupam Dutta

University of Vaasa - Department of Mathematics and Statistics

Johan Knif

Hanken School of Economics / Department of Finance and Statistics

James W. Kolari

Texas A&M University - Department of Finance

Seppo Pynnonen

University of Vaasa, Department of Mathematics and Statistics

Date Written: July 11, 2013

Abstract

This paper proposes a novel standardized test for abnormal returns in long-horizon event studies that takes into account cross-sectional correlation, autocorrelation, and hetersoskedasticity of stock returns. Extensive simulation analyses demonstrate improved size and power of testing relative to existing long-run test methodologies. Application to initial public offerings and seasoned equity offerings further demonstrates robustness to extreme return outliers inherent in these long-run studies.

Keywords: Abnormal returns, Long-run event study, Standardized returns, IPOs, SEOs

JEL Classification: C4, G1

Suggested Citation

Dutta, Anupam and Knif, Johan Anders and Kolari, James W. and Pynnonen, Seppo, A Robust and Powerful Test of Abnormal Stock Returns in Long-Horizon Event Studies (July 11, 2013). Available at SSRN: https://ssrn.com/abstract=2292356 or http://dx.doi.org/10.2139/ssrn.2292356

Anupam Dutta

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

Wolffintie 34
65200 Vaasa
Finland

Johan Anders Knif

Hanken School of Economics / Department of Finance and Statistics ( email )

P.O. Box 287
FIN-65101 Vasa
Finland
+358 50 589 2612 (Phone)
+358 6 3533 703 (Fax)

HOME PAGE: http://www.hanken.fi/staff/jknif/

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/

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