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Measuring Event Impacts in Thinly Traded Stocks

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  • Heinkel, Robert
  • Kraus, Alan

Abstract

The purpose of this paper is to suggest simple procedures designed to cope with the effects of thin trading on event study tests. The procedures are directed at two central problems: (i) missing individual stock returns (i.e., days on which no trading is observed in a security), and (ii) the effect of a bid-ask spread on the time series behavior of daily stock return data. We attack these problems by explicitly incorporating them in the construction of a generating process for observed security returns. First, we develop a procedure for “filling in†missing returns. Then, we model a return-generating process of observed security returns that allows estimation of the variance of unobserved true security returns for use in hypothesis testing.

Suggested Citation

  • Heinkel, Robert & Kraus, Alan, 1988. "Measuring Event Impacts in Thinly Traded Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(1), pages 71-88, March.
    • Handle: RePEc:cup:jfinqa:v:23:y:1988:i:01:p:71-88_01
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    Citations

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    Cited by:

    1. G. Geoffrey Booth & Juha-Pekka Kallunki & Teppo Martikainen, 1999. "Earnings news and the behaviour of large and small traders in the Finnish stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 6(12), pages 771-774.
    2. Jan Bartholdy & Dennis Olson & Paula Peare, 2007. "Conducting Event Studies on a Small Stock Exchange," The European Journal of Finance, Taylor & Francis Journals, vol. 13(3), pages 227-252.
    3. Miwako Nitani & Brian Carriere & Adam Bleackley, 2015. "Recognizing corporate citizenship: market reactions," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(1-2), pages 85-102, April.
    4. Smimou, K. & Bector, C.R. & Jacoby, G., 2008. "Portfolio selection subject to experts' judgments," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1036-1054, December.
    5. Olha Zadorozhna, 2012. "How much do the neighbors pay? Economic costs of international gas disputes," IEFE Working Papers 48, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    6. Lei Wu & Kuan Xu & Qingbin Meng, 2021. "Information flow and price discovery dynamics," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 329-367, January.
    7. Shyu, Yih-Wen & Chan, Kam C. & Liang, Hsin-Yu, 2018. "Spillovers of price efficiency and informed trading from short sales to margin purchases in absence of uptick rule," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 163-183.
    8. Bell, Peter N, 2010. "New methodology for event studies in Bonds," MPRA Paper 26694, University Library of Munich, Germany.
    9. 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.
    10. Guido BOLLIGER & Manuel KAST, 2003. "Executive Compensation and Analyst Guidance: The Link between CEO Pay and Expectations Management," FAME Research Paper Series rp102, International Center for Financial Asset Management and Engineering.
    11. Geoffrey Booth, G. & Ciner, Cetin, 1997. "International transmission on information in corn futures markets," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 175-187, October.
    12. Booth, G. Geoffrey & Kallunki, Juha-Pekka & Martikainen, Teppo, 2001. "Liquidity and the turn-of-the-month effect: evidence from Finland," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(2), pages 137-146, June.
    13. Beer, Francisca Marie, 1997. "Estimation of risk on the Brussels Stock Exchange: Methodological issues and empirical results," Global Finance Journal, Elsevier, vol. 8(1), pages 83-94.
    14. M. Fevzi Esen & Emrah Bilgic & Ulkem Basdas, 2019. "How to detect illegal corporate insider trading? A data mining approach for detecting suspicious insider transactions," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 60-70, April.

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