the Event Study Webpage
by Don Cram
Under construction...suggestions/references appreciated.
What is an event study? An event study, in
economics/finance/accounting research, is an analysis of whether there
was a statistically significant reaction in financial markets to past
occurences of a given type of event that is hypothesized to affect
public firms' market values.
To go further:
The event that affects a firm's market value may be within the firm's
control, such as the event of the announcement of a stock split. Or
the event may be outside the firm's control, such as the event of a
legislative act being passed, or a regulatory ruling being announced,
that will affect the firm's future operations in some way.
The basic recipe for an event study is:
A large academic literature has built up reflecting debate on how to
do the evaluation (3) in a statistically sound way. Issues, for example,
include how to measure what usual returns are for a firm, how to
summarize returns during an event-period, how to control for
- (1) to collect a number of such events, i.e. a list of firms and dates,
perhaps by running a literature search to find news announcements,
- (2) to run programs that look up stock price changes for those firms
in periods around those dates, and also changes in a market-wide index
in the same periods (e.g., collecting this data from databases such as the
huge CRSP database of daily stock market returns for U.S. firms from
July 1962 through Dec. 31, 1997),
- (3) to run additional programs that evaluate whether event-period
price changes for the list of firms are abnormally large, compared to
usual returns for those firms and controlling for market-wide effects
on all firms' returns during the event periods, and,
- (4) optionally, to additionally run further regressions to
explain the abnormal returns in (3), by external firm characteristics.
Selected general sources on the event study methodology (in
alphabetical order by first author) include:
Classic event study references are included in Andrew Karolyi's
syllabus for his Winter 1995 course taught at Ohio State, Fin 921:
Empirical Research in Finance at
of 5 August 1997 and still available as of 2/99. Karolyi is now at
University of Western Ontario (2/99). In the Ohio State course,
Karolyi included the following articles under Event Study Methodology
(with the Boehmer article required reading for his course and the
- Armitage, Seth "Event Study Methods and Evidence on Their
Performance", Journal of Economic Surveys, vol 8, no 4, 1995, pages
- Binder, John J., professor in Dept. of Finance, University of
Illinois, Chicago, has written a comprehensive review: "The Event
Study Methodology Since 1969". Published in _Review of Quantitative
Finance and Accounting_.
- Bowman, Robert G. "Understanding and Conducting Event Studies"
Journal of Business Finance and Accounting, Winter 1983, vol 10 number
4, pages 561-584.
- Patrick L. Brockett, Hwei-Mei Chen and James R. Garven "Event
Study Methodology: A New and Stochastically Flexible Approach", at http://aria.org/research/eventstudy.html (as of 2/99)
Previously was downloadable in acrobat or postscript, dated June 1994, reportedly at
An alternative URL that may work better is http://220.127.116.11:80/Finance/WPA/eventstudy.html.
- Campbell, John Y., Andrew W. Lo and A. Craig MacKinlay,
"Event-Study Analysis", Chapter 4 in _The Econometrics of Financial
Markets_ (Princeton University Press ISBN 0-691-04301-9, 1997)
- Arnold R. Cowan and Anne M.A. Sergeant, "Trading
Frequency and Event Study Test Specification" at
- Arnold R. Cowan and Anne M. A. Sergeant,
"Interacting Biases, Non-Normal Return Distributions
and the Performance of Parametric and Bootstrap
Tests for Long-Horizon Event Studies",
(announced on sci.finance.abstracts 11/96; event
studies, long-horizon performance, abnormal
returns, nonparametric tests, bootstrap),
- Dombrow, Jonathan, Mauricio Rodriguez, and C. F. Sirmans, "A
Complete Non-parametric Event Study Approach", under review at Review
of Quantitative Finance and Accounting. See
- Glascock, John L. and Imre Karafiath, "Statistical Inference in
Event Studies Using Multiple Regression" in Alternative Ideas in Real
Estate Investment, Arthur L. Schwartz and Steven D. Kapplin,
editors. This is volume 2 of Real Estate Research Issues, sponsored by
the American Real Estate Society. Published by Kluwer in 1995.
- LeClere, Marc J. "The
Occurence and Timing of Events: The Application of Event History
Models in Accounting and Finance", working paper dated Sept 1999,
available at http://papers.ssrn.com/paper.taf?abstract_id=181553
(announced on SSRN and added 11/99). This is not about event studies per se, but rather about hazard-rate and similar models that explain occurences of events. It is included here for comparison sake.
- Maddala, G. S. "Applications of Limited Dependent Variable Models
in Finance", in G. S. Maddala and C. R. Rao, eds., _Handbook of
Statistics_, Vol 14, 1996, p. 553-566. Provides 2 pages of comments
on event study methodology. (added 4/99)
- Marais, Laurentius and Katherine Schipper, "Applications of Event
Study Methods in Litigation Support" in _Litigation Services
Handbook_, edited by Peter B. Frank, Michael J. Wagner and Roman
L. Weil (New York: John Wiley and Sons, 1991 or 2nd edition, 1995).
This is apparently based on a teaching note by Katherine Schipper,
"Notes on event studies; prepared for Business 431-81; Fall quarter,
1992", itself an unpublished, very helpful non-technical explanation
of event studies. This work includes discussion of event study
approaches to practical applications such as in litigation support.
- MacKinlay, A. Craig "Event Studies in Economics and Finance", Journal of
Economic Literature, March 1997. (added 1/98)
- McWilliams, A., and D. Siegel "Event Studies in Management
Research: Theoretical and Empirical Issues", Academy of Management
Journal, 40, 1997, p 626-657. (added 2/99)
- Peterson, Pamela P. "Event Studies: A Review of Issues and
Methodology", Quarterly Journal of Business and Economics, 28, pages
36-66, 1989. (added 8/99)
- N. R. Prabhala "Conditional Methods in Event-Studies and an
Equilibrium Justification for Standard Event-Study Procedures" in
Review of Financial Studies, Vol. 10 No. 1. (announced on FEN Journal
of Financial Abstracts Series C March 26, 1997) This paper defends
traditional event study statistics from recent criticisms that
conditional event studies are misspecified.
- Michael Salinger "Standard Errors in Event Studies", Journal of
Financial and Quantitative Analysis, Vol 27 No 1 March 1992.
- Michael Salinger "Value Event Studies", The Review of Economics
and Statistics, 1992.
- Michael Salinger "When Do Peeping Toms See Something
(Statistically) Significant", March 1994, unpublished working paper.
- K. R. Sawyer, professor in the Department of Accounting and Finance,
University of Melbourne, Australia. "How Eventful Are Event Studies?"
1997 working paper. Email address k.sawyer @ ecomfac.unimelb.edu.au.
- Rex Thompson "Empirical Methods of Event Studies in Corporate
Finance", Chapter 29 in _Handbooks in OR & MS_, Vol. 9, R. Jarrow et
al., eds., Elsevier Science B.V. 1995.
A similar online list with some interesting references is the
Professor Frank Finn's reading list for University of Queensland
course 455 in business finance, at
(as of 2/99).
Some other important papers are:
- Ball, C. and W. Torous, 1988, "Investigating Security Price
Performance in the Presence of Event Date Uncertainty," Journal of
Financial Economics 22, 123-154.
- Binder, J., 1985, "On the Use of the Multivariate Regression
Model in Event Studies," Journal of Accounting Research 23, 370-383.
- Boehmer, E., Musumeci, J. and A. Poulsen, 1991, "Event- Study
Methodology Under Conditions of Event-Induced Variance," Journal of
Financial Economics 30, 253-272.
- Brown, S. and J. Warner, 1985, "Using Daily Stock Returns: The
Case of Event Studies," Journal of Financial Economics 14, 3-31.
- Fama, E., 1976, Foundations of Finance. New York: Basic
Books. Chapters 3 and 4.
- Fama, E., Fisher, L., Jensen, M. and R. Roll, 1969, "The
Adjustment of Stock Prices to New Information," International Economic
Review 10, 1-21.
- Malatesta, P., 1986, "Measuring Abnormal Performance: The Event
Parameter Approach Using Joint Generalized Least Squares," Journal of
Financial and Quantitative Analysis 21, 27-38.
- Sefcik, S. and R. Thompson, 1986, "An Approach to Statistical
Inference in Cross-sectional Models with Security Abnormal Returns as
Dependent Variable," Journal of Accounting Research 24, 316-334.
- Thompson, R., 1985, "Conditioning the Return-Generating Process
on Firm Specific Events: A Discussion of Event Study Methods," Journal
of Financial and Quantitative Analysis 20, 151-168.
Programs for event studies
Data for event studies:
- Dimson, Elroy, 1979 "Risk Measurement When Shares are Subject to
Infrequent Trading", vol 7, 197-226.
- Scholes, Myron and J. Williams, 1977, "Estimating Betas from
Nonsynchronous Data", Journal of Financial Economics, vol 5, 309-328.
Event study applications are too numerous to list, but a starter
sampling is as follows:
- CRSP: Most academic research employing event studies on
U.S. securities market data uses daily or monthly stock returns from
the CRSP (Center for Research in Security Prices) data. For
information on CRSP data and access programs, see CRSP Data
Access and Analysis webpage which surveys all known CRSP-related
information resources published and/or on the WWW. These include: the
CRSP-L email list and FAQ webpage; university webpages on how to
access CRSP; papers and technical notes on access and analysis of CRSP
Event study applications not yet published in a peer-reviewed journal, whose drafts are available on the web in
Note event studies of the efficiency of markets may be classified at
G14 in the JEL
Please send suggestions, comments, and requests.
- That required reporting of annual toxic chemical releases by
U.S. firms cause stock market reactions, a pioneering demonstration of
environmental management effect in the stock market:
Walter G. Blacconiere and W. Dana Northcutt,
"Environmental Information and Market Reactions to Environmental Legislation",
Journal of Accounting, Auditing & Finance, Spring, 1997, pages 149-178.
- That corporate news announcements do NOT move the market, in the
Mexican stock market, due probably to insider trading:
Utpal Bhattacharya, Hazem Daouk, Brian Jorgenson, and Carl-Heinrich
Kehr "When an Event is Not an Event: The Curious Case of an Emerging
Market" (forthcoming in Journal of Financial Economics), working paper
dated 12/98 available at http://ashem.bus.indiana.edu/finweb/UB.html
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