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The Specification and Power of the Sign Test in Measuring Security Price Performance: Comments and Analysis

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  • Zivney, Terry L
  • Thompson, Donald J, II

Abstract

In a 1980 paper, Stephen J. Brown and Jerold B. Warner claim that, when applied to stock returns, the nonparametric sign test is misspecified and lacking in power. The authors show that this claim is incorrect and stems from confounding the mean and median of a distribution and from not correcting for the different natural levels of significance. After restating Brown and Warner's results, they find that, in general, the sign test appears as powerful and well-specified as the t-test; and when applied to market-adjusted returns and market- and risk-adjusted returns methodologies, the sign test appears more powerful than the t-test. Copyright 1989 by MIT Press.

Suggested Citation

  • Zivney, Terry L & Thompson, Donald J, II, 1989. "The Specification and Power of the Sign Test in Measuring Security Price Performance: Comments and Analysis," The Financial Review, Eastern Finance Association, vol. 24(4), pages 581-588, November.
    • Handle: RePEc:bla:finrev:v:24:y:1989:i:4:p:581-88
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    Cited by:

    1. Kryzanowski, Lawrence & Zhang, Hao, 1991. "Valuation effects of Canadian stock split announcements," Economics Letters, Elsevier, vol. 36(3), pages 317-322.
    2. Mun, Johnathan C. & Vasconcellos, Geraldo M. & Kish, Richard, 2000. "The Contrarian/Overreaction Hypothesis: An analysis of the US and Canadian stock markets," Global Finance Journal, Elsevier, vol. 11(1-2), pages 53-72.
    3. Matteo Pelagatti, 2013. "Nonparametric tests for event studies under cross-sectional dependence," Working Papers 244, University of Milano-Bicocca, Department of Economics, revised May 2013.
    4. Jan Hanousek & Evžen Kočenda, 2011. "Learning by investing," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(1), pages 125-149, January.
    5. Mun, Johnathan C. & Vasconcellos, Geraldo M. & Kish, Richard, 1999. "Tests of the Contrarian Investment Strategy Evidence from the French and German stock markets," International Review of Financial Analysis, Elsevier, vol. 8(3), pages 215-234, March.
    6. Samuel Mongrut & Jesús Tong, 2006. "Is There a Market Payoff for Being Green at the Lima Stock Exchange?," Working Papers 06-02, Centro de Investigación, Universidad del Pacífico.

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