Decomposing abnormal returns in stochastic linear models
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.
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