A Simple-But-Powerful Test for Long-Run Event Studies

44 Pages Posted: 16 Nov 2005  

Gitit Gur-Gershgoren

Israel Securities Authority

Jaime F. Zender

University of Colorado at Boulder - Department of Finance

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: October 2, 2008

Abstract

Testing for long-run abnormal performance has become an increasingly important part of the finance literature. We propose a test for abnormal performance in long-run event studies using the buy and hold abnormal return (BHAR). We augment the control firm approach of Barber and Lyon (1997) by using multiple control firms to create multiple correlated BHARs for each sample firm. Using the control firm structure allows us to avoid the new listing, rebalancing, and skewness biases. Further, despite the correlation amongst the BHARs, using multiple control firms allows us to increase the power of the test beyond that of existing tests. Finally, we show that our test is well-specified in both random and nonrandom samples.

Keywords: Long-run event study methodology

JEL Classification: C15, G14

Suggested Citation

Gur-Gershgoren, Gitit and Zender, Jaime F. and Hughson, Eric N., A Simple-But-Powerful Test for Long-Run Event Studies (October 2, 2008). Robert Day School of Economics and Finance Research Paper No. 2008-8. Available at SSRN: https://ssrn.com/abstract=847791 or http://dx.doi.org/10.2139/ssrn.847791

Gitit Gur-Gershgoren

Israel Securities Authority ( email )

22 Kanfei Nesharim Street
Jerusalem 95464
Israel

Jaime F. Zender

University of Colorado at Boulder - Department of Finance ( email )

Boulder, CO 80309
United States
303-554-1665 (Phone)
303-492-4689 (Fax)

HOME PAGE: http://www-bus.colorado.edu/faculty/Zender/

Eric N. Hughson (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3664 (Phone)

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