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Sample Selection and Event Study Estimation

41 Pages Posted: 15 Mar 2007 Last revised: 15 Jun 2012

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Date Written: December 6, 2008

Abstract

The anomalies literature suggests that pricing is biased systematically for securities grouped by certain characteristics. If these characteristics are related to selection in an event study sample, imprecise predictions of an event study method may produce erroneous results. This paper performs simulations to compare a battery of event study prediction and testing methods where samples are grouped by market equity, prior returns, book-to-market, and earnings-to-price ratios. Significant statistical errors are reported for both standard and newer methods, including three- and four-factor models. A characteristic-based benchmark model produces the least biased returns with the least rejection errors in all samples.

Keywords: Event studies, nonparametric test statistics, multifactor models, characteristic-based benchmark model

JEL Classification: G30, C14, C15

Suggested Citation

Ahern, Kenneth R., Sample Selection and Event Study Estimation (December 6, 2008). Journal of Empirical Finance, Vol. 16, No. 3, June 2009. Available at SSRN: https://ssrn.com/abstract=970351

Kenneth Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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