Testing Excess Returns on Event Days: Log Returns vs. Dollar Returns

18 Pages Posted: 28 Mar 2014 Last revised: 16 May 2014

See all articles by Tiago Duarte-Silva

Tiago Duarte-Silva

Charles River Associates (CRA); Boston College

Maria Tripolski-Kimel

Charles River Associates (CRA); Boston University

Date Written: February 28, 2014

Abstract

The results of academic and practitioners’ event studies are often translated from excess log returns into excess dollar returns. The prior literature argues for a difference between the statistical significance of excess log returns and that of excess dollar returns. In contrast, we show analytically and using simulations that specifying event study hypotheses in terms of excess dollar returns is equivalent to specifying them in terms of excess log returns. The prior literature’s result was due to a bias in their estimator of expected excess dollar returns, an incorrect assumption that it is approximately normally distributed, and a misapplication of the delta method.

Keywords: Event study, Dollar return, Statistical significance

JEL Classification: C12, C13, G14, K22

Suggested Citation

Duarte-Silva, Tiago and Tripolski-Kimel, Maria, Testing Excess Returns on Event Days: Log Returns vs. Dollar Returns (February 28, 2014). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2416990 or http://dx.doi.org/10.2139/ssrn.2416990

Tiago Duarte-Silva (Contact Author)

Charles River Associates (CRA) ( email )

200 Clarendon Street, T-31
Boston, MA 02116
United States
+1-617-425-3128 (Phone)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Maria Tripolski-Kimel

Charles River Associates (CRA) ( email )

200 Clarendon St
Boston, MA 02116
United States
617-425-3656 (Phone)

HOME PAGE: http://www.crai.com/ProfessionalStaff/listingdetails.aspx?id=14705

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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