Nonparametric rank tests for event studies
AbstractBecause stock prices are not normally distributed, the power of nonparametric rank tests dominate parametric tests in event study analyses of abnormal returns on a single day. However, problems arise in the application of nonparametric tests to multiple day analyses of cumulative abnormal returns (CARs) that have caused researchers to normally rely upon parametric tests. In an effort to overcome this shortfall, this paper proposes a generalized rank (GRANK) testing procedure that can be used on both single day and cumulative abnormal returns. Asymptotic distributions of the associated test statistics are derived, and their empirical properties are studied with simulations of CRSP returns. The results show that the proposed GRANK procedure outperforms previous rank tests of CARs and is robust to abnormal return serial correlation and event-induced volatility. Moreover, the GRANK procedure exhibits superior empirical power relative to popular parametric tests.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 18 (2011)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/jempfin
Rank test; Abnormal returns; Event study; Standardized returns;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
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- 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.
- Lehmann, Sibylle H. & Hauber, Philipp & Opitz, Alexander, 2012. "Political rights, taxation, and firm valuation: Evidence from Saxony around 1900," FZID Discussion Papers 59-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
- Berg, Florian & Le Pen, Yannick, 2013. "Do corporate bond and credit default swap markets value environmental, social or corporate governance events?," Economics Papers from University Paris Dauphine 123456789/11380, Paris Dauphine University.
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