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The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns

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Author Info
Corrado, Charles J.
Zivney, Terry L.

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Abstract

This paper evaluates a nonparametric sign test for abnormal security price performance in event studies. The sign test statistic examined here does not require a symmetrical distribution of security excess returns for correct specification. Sign test performance is compared to a parametric t-test and a nonparametric rank test. Simulations with daily security return data show that the sign test is better specified under the null hypothesis and often more powerful under the alternative hypothesis than a t-test. The performance of the sign test is dominated by the performance of a rank test, however, indicating that the rank test is preferable to the sign test in obtaining nonparametric inferences concerning abnormal security price performance in event studies.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 27 (1992)
Issue (Month): 03 (September)
Pages: 465-478
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Handle: RePEc:cup:jfinqa:v:27:y:1992:i:03:p:465-478_00

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  1. Sascha Wilkens & Jens Wimschulte, 2005. "Price and Volume Effects Associated with 2003’s Major Reorganization of German Stock Indices," Financial Markets and Portfolio Management, Springer, vol. 19(1), pages 61-98, June. [Downloadable!] (restricted)
  2. Arnold R. Cowan & Anne M.A. Sergeant, 1996. "Trading Frequency and Event Study Test Specification," Finance 9610002, EconWPA. [Downloadable!]
  3. John Jackson & Audrey Kline & Sarah Skinner, 2006. "The Impact of Non-Normality and Misspecification on Merger Event Studies," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 13(2), pages 247-264, July. [Downloadable!] (restricted)
  4. Sonia Sanabria, 2004. "Comportamiento De Los Precios Y Volúmenes De Negociación Ante Anuncios De Beneficios Anuales," Working Papers. Serie EC 2004-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  5. Seppo Ikäheimo & Anders Kjellman & Jan Holmberg & Sari Jussila, 2004. "Employee stock option plans and stock market reaction: evidence from Finland," European Journal of Finance, Taylor and Francis Journals, vol. 10(2), pages 105-122, April. [Downloadable!] (restricted)
  6. Taoufik Bouraoui, 2008. "L'impact des spams boursiers sur les volumes : Application de la méthodologie des études d’événement," EconomiX Working Papers 2008-11, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  7. Bartholdy, Jan & Olson, Dennis & Peare, Paula, 2006. "Conducting event studies on a small stock exchange," Finance Research Group Working Papers F-2006-03, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
    Other versions:
  8. Michelle L. Barnes & Shiguang Ma, 2002. "The behavior of China's stock prices in response to the proposal and approval of bonus issues," Working Papers 02-1, Federal Reserve Bank of Boston. [Downloadable!]
  9. Jochen R. Andritzky & Andreas Jobst & Sylwia Barbara Nowak & Yacine Aït-Sahalia & Natalia T. Tamirisa, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives during the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund. [Downloadable!]
  10. Raddatz, Claudio, 2009. "Multilateral debt relief through the eyes of financial markets," Policy Research Working Paper Series 4872, The World Bank. [Downloadable!]
  11. Ana Paula Serra, 2002. "Event Study Tests: A brief survey," FEP Working Papers 117, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  12. James M. Sfiridis & Alan E. Gelfand, 2002. "A survey of sampling-based Bayesian analysis of financial data," Applied Mathematical Finance, Taylor and Francis Journals, vol. 9(4), pages 273-291, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-23.

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