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Conducting event studies on a small stock exchange

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Author Info

  • Bartholdy, Jan

    ()
    (Department of Business Studies)

  • Olson, Dennis

    ()
    (American University of Sharjah)

  • Peare, Paula

    ()
    (Department of Business Studies)

Abstract

This paper analyses whether it is possible to perform an event study on a small stock exchange with thinly trade stocks. The main conclusion is that event studies can be performed provided that certain adjustments are made. First, a minimum of 25 events appears necessary to obtain acceptable size and power in statistical tests. Second, trade to trade returns should be used. Third, one should not expect to consistently detect abnormal performance of less than about 1% (or perhaps even 2%), unless the sample contains primarily thickly traded stocks. Fourth, nonparametric tests are generally preferable to parametric tests of abnormal performance. Fifth, researchers should present separate results for thickly and thinly traded stock groups. Finally, when nonnormality, event induced variance, unknown event day, and problems of very thin trading are all considered simultaneously, no one test statistic or type of test statistic dominates the others

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File URL: http://www.hha.dk/bs/wp/fin/F_2006_03.pdf
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Bibliographic Info

Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Research Group Working Papers with number F-2006-03.

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Length: 39 pages
Date of creation: 25 Apr 2006
Date of revision:
Handle: RePEc:hhb:aarbfi:2006-03

Contact details of provider:
Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
Fax: + 45 86 15 19 43
Web page: http://www.asb.dk/about/departments/bs.aspx
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Related research

Keywords: Event studies; Thin trading;

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References

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  1. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
  2. Maynes, Elizabeth & Rumsey, John, 1993. "Conducting event studies with thinly traded stocks," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 145-157, February.
  3. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  4. Bartholdy, Jan & Riding, Allan, 1994. "Thin Trading and the Estimation of Betas: The Efficacy of Alternative Techniques," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(2), pages 241-54, Summer.
  5. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  6. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
  7. Campbell, Cynthia J. & Wesley, Charles E., 1993. "Measuring security price performance using daily NASDAQ returns," Journal of Financial Economics, Elsevier, vol. 33(1), pages 73-92, February.
  8. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  9. Corrado, Charles J. & Zivney, Terry L., 1992. "The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 465-478, September.
  10. Heinkel, Robert & Kraus, Alan, 1988. "Measuring Event Impacts in Thinly Traded Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 71-88, March.
  11. John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
  12. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
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Citations

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Cited by:
  1. Panagiotis Fotis & Michael Polemis & Nikolaos Zevgolis, 2011. "Robust Event Studies for Derogation from Suspension of Concentrations in Greece during the Period 1995–2008," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 67-89, March.
  2. Berezinets, Irina & Ilina, Yulia & Muravyev, Alexander, 2011. "CEO and Board Characteristics as Determinants of Private Benefits of Control: Evidence from the Russian Stock Exchange," IZA Discussion Papers 6256, Institute for the Study of Labor (IZA).
  3. Polwat Lerskullawat, 2013. "Warrant Seos in an Emerging Market: Evidence from Thailand," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress, ToKnowPress.
  4. Matteo Pelagatti, 2013. "Nonparametric tests for event studies under cross-sectional dependence," Working Papers, University of Milano-Bicocca, Department of Economics 244, University of Milano-Bicocca, Department of Economics, revised May 2013.
  5. Fotis, Panagiotis, 2011. "Firm's damages from antitrust & abuse of dominant position investigations," MPRA Paper 32788, University Library of Munich, Germany, revised 13 Aug 2011.
  6. Peter S. Schmidt & Therese Werner, 2012. "Channeling the final Say in Politics," CER-ETH Economics working paper series 12/165, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  7. Høg, Esben, 2008. "Volatility and realized quadratic variation of differenced returns : A wavelet method approach," Finance Research Group Working Papers, University of Aarhus, Aarhus School of Business, Department of Business Studies F-2008-06, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  8. Jørgensen, Peter Løchte & De Giovanni, Domenico, 2008. "Time Charters with Purchase Options in Shipping: Valuation and Risk Management," Finance Research Group Working Papers, University of Aarhus, Aarhus School of Business, Department of Business Studies F-2008-05, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  9. Corrado, Charles J. & Truong, Cameron, 2008. "Conducting event studies with Asia-Pacific security market data," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 16(5), pages 493-521, November.
  10. Dina Tsytsulina, 2013. "The effects of mergers on sellers, customers, and competitors in Russia’s ferrous and non-ferrous metal industries: the application of financial event study," HSE Working papers WP BRP 36/EC/2013, National Research University Higher School of Economics.

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