Implications of Multiple Structural Changes in Event Studies

THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 35 No. 4, Winter 1995

Posted: 15 Apr 1998

See all articles by John E. Burnett

John E. Burnett

University of Alabama at Huntsville

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance

Carolyn Carroll

affiliation not provided to SSRN

Abstract

The detection of unbiased abnormal returns in the classic event study depends on the validity of the assumption that the parameters of the return generating process remain constant throughout the sample period. However, given the substantial amount of evidence to support the fact that the market model parameters are not stable over time, previous research has suggested that the classic methodology may result in mismeasurement of the magnitude and timing of the market response and lead to incorrect conclusions regarding the impact of the event. This study addresses the issue of parameter nonstationarity in event studies by examining its implication for measuring the market response. Using an unconstrained estimation model that allows multiple structural changes in the security pricing model, our results indicate that the usual finding of statistically significant positive abnormal returns on and around the split announcement is robust to the more general specification of the underlying return generating process.

JEL Classification: G14

Suggested Citation

Burnett, John E. and Thistle, Paul D. and Carroll, Carolyn A., Implications of Multiple Structural Changes in Event Studies. THE QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 35 No. 4, Winter 1995, Available at SSRN: https://ssrn.com/abstract=7269

John E. Burnett (Contact Author)

University of Alabama at Huntsville ( email )

Huntsville, AL 35899
United States
205-895-6703 (Phone)
205-895-6328 (Fax)

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States
702-895-3856 (Phone)
702-895-4650 (Fax)

Carolyn A. Carroll

affiliation not provided to SSRN

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