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Decomposing abnormal returns in stochastic linear models

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  • Lin, Carl

Abstract

This paper presents a method helpful in analyzing the sources of return in an event study. A generalized decomposition result derived from the differential between two random linear functions attributes the effect of events or regulations on the value of firms to differences in economy-wide and individualistic factors. In aggregate decomposition, the abnormal return in the existing literature is equivalent to the coefficient effects. As an example, I take the market model in Card and Krueger (1995) showing that this approach helps provide additional insights.

Suggested Citation

  • Lin, Carl, 2013. "Decomposing abnormal returns in stochastic linear models," Economics Letters, Elsevier, vol. 118(1), pages 143-147.
  • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:143-147
    DOI: 10.1016/j.econlet.2012.09.035
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    References listed on IDEAS

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    1. Ben Jann, 2005. "Standard Errors for the Blinder-Oaxaca Decomposition," German Stata Users' Group Meetings 2005 03, Stata Users Group.
    2. Yun, Myeong-Su, 2004. "Decomposing differences in the first moment," Economics Letters, Elsevier, vol. 82(2), pages 275-280, February.
    3. Gerald G. Brown & Herbert C. Rutemiller, 1977. "Means and Variances of Stochastic Vector Products with Applications to Random Linear Models," Management Science, INFORMS, vol. 24(2), pages 210-216, October.
    4. Daniel A. Powers & Hirotoshi Yoshioka & Myeong-Su Yun, 2011. "mvdcmp: Multivariate decomposition for nonlinear response models," Stata Journal, StataCorp LP, vol. 11(4), pages 556-576, December.
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    More about this item

    Keywords

    Abnormal returns; Oaxaca decomposition; Event study; Market model;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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