Event Studies

Question 1

Steps in Event Studies

Answer 1

1. Market Models
2. Expected and Abnormal Returns
3. Average Abnormal Returns

Question 2

Steps in Market Models with Formulas

Answer 2

N: =COUNT
alpha: =INTERCEPT
beta: =SLOPE
s (residuals): =STEYX
R Squared: =RSQ
SE Beta: s/SQRT(N x Variance Mkt)

Question 3

Steps in Expected and Abnormal Returns with Formulas

Answer 3

Expected: alpha + beta x Mkt R
Abnormal: stock R - E(r)

Question 4

Steps in Average Abnormal Returns

Answer 4

1. Event Window (Numbers)
2. Paste AR from Stocks
3. AAR
   4: t
   5: CAAR
4. SE(AAR)
5. t

Question 5

AAR Formula

Answer 5

=AVERAGE(AR,AR)

Question 6

First t stat

Answer 6

=AAR/SQRT(0.25 x (s^2+s^2))

Question 7

SE (AAR) Formula

Answer 7

=SQRT(0.25 x (s^2+s^2))

Question 8

Second t stat

Answer 8

=CAAR/(SQRT(COUNT(CAAR:CAAR)) x SE(AAR))

Question 9

Significance for 99%, 95% and 90%

Answer 9

99%: 2.576
95%: 1.96
90%: 1.28