IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v17y2010i4p803-817.html
   My bibliography  Save this article

Improving the statistical power of financial event studies: The inverse variance weighted average-based test

Author

Listed:
  • da Graça, Tarcisio B.

Abstract

Some claim that the event study methodology literature is "mature". But the overlooked IVWA-based test is more powerful than conventional tests. Its implementation requires the same inputs as the traditional test. Its functional form yields the power improvement. Using CRSP monthly data for 1944-1971 and 1980-2006, simulations indicate that IVWA-based test correctly rejects the null hypothesis substantially more frequently than the traditional test. Its superiority seems more pronounced over 1980-2006. This casts doubts over previous event studies that failed to reject the null. They may have done so incorrectly due to lack of statistical power. Their reevaluation under IVWA-based test is advisable.

Suggested Citation

  • da Graça, Tarcisio B., 2010. "Improving the statistical power of financial event studies: The inverse variance weighted average-based test," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 803-817, September.
  • Handle: RePEc:eee:empfin:v:17:y:2010:i:4:p:803-817
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5398(10)00029-0
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thompson, Rex, 1985. "Conditioning the Return-Generating Process on Firm-Specific Events: A Discussion of Event Study Methods," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 151-168, June.
    2. Malatesta, Paul H., 1986. "Measuring Abnormal Performance: The Event Parameter Approach Using Joint Generalized Least Squares," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(01), pages 27-38, March.
    3. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    4. McDonald, Bill, 1987. "Event Studies and Systems Methods: Some Additional Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(04), pages 495-504, December.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:17:y:2010:i:4:p:803-817. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.