A Generalized Method for Detecting Abnormal Returns and Changes in Systematic Risk

FRB of Atlanta Working Paper No. 2001-8

33 Pages Posted: 9 May 2001  

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Ken B. Cyree

University of Mississippi - School of Business Administration

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Abstract

We generalize traditional event-study techniques to allow for event-induced parameter shifts, shifting variances, and firm-specific event periods. Our method, which nests traditional methods, also permits systematic risk to change gradually during the event period and exit the period at higher or lower levels. We use our approach to study 123 banks that acquired other institutions between 1989 and 1995. We find a significant change in the systematic risk of the acquiring firms, significant ARCH effects, and an event period that ends before the date of the announcement. None of these results is detectable using conventional methods.

Keywords: event study, parameter shifts, banks, acquisitions

JEL Classification: G14, G21, G34

Suggested Citation

DeGennaro, Ramon P. and Cyree, Ken B., A Generalized Method for Detecting Abnormal Returns and Changes in Systematic Risk. FRB of Atlanta Working Paper No. 2001-8. Available at SSRN: https://ssrn.com/abstract=267536 or http://dx.doi.org/10.2139/ssrn.267536

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

Ken B. Cyree

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

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