Publication Type
Journal Article
Version
publishedVersion
Publication Date
12-1991
Abstract
Many authors have identified the hazards of ignoring event-induced variance in event studies. To determine the practical extent of the problem, we simulate an event with stochastic effects. We find that when an event causes even minor increases in variance, the most commonly-used methods reject the null hypothesis of zero average abnormal return too frequently when it is true, although they are reasonably powerful when it is false. We demonstrate that a simple adjustment to the cross-sectional techniques produces appropriate rejection rates when the null is true and equally powerful tests when it is false.
Discipline
Business | Finance and Financial Management | Management Sciences and Quantitative Methods
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
30
Issue
2
First Page
253
Last Page
272
ISSN
0304-405X
Identifier
10.1016/0304-405X(91)90032-F
Publisher
Elsevier
Citation
BOEHMER, Ekkehart; MASUMECI, Jim; and POULSEN, Annette B..
Event-study methodology under conditions of event-induced variance. (1991). Journal of Financial Economics. 30, (2), 253-272.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4666
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/0304-405X(91)90032-F
Included in
Finance and Financial Management Commons, Management Sciences and Quantitative Methods Commons
Comments
JFE All Star Paper (Honors each volume’s top two papers by average citations per year).