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A robust and powerful test of abnormal stock returns in long-horizon event studies

Author

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  • Dutta, Anupam
  • Knif, Johan
  • Kolari, James W.
  • Pynnonen, Seppo

Abstract

This paper proposes a novel standardized test for abnormal returns in long-horizon event studies that takes into account cross-sectional correlation, autocorrelation, and heteroskedasticity of stock returns. Extensive simulation analyses demonstrate improved size and power of testing relative to existing long-run test methodologies. Application to initial public offerings and seasoned equity offerings further demonstrates robustness to extreme return outliers inherent in these long-run studies.

Suggested Citation

  • Dutta, Anupam & Knif, Johan & Kolari, James W. & Pynnonen, Seppo, 2018. "A robust and powerful test of abnormal stock returns in long-horizon event studies," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 1-24.
    • Handle: RePEc:eee:empfin:v:47:y:2018:i:c:p:1-24
    DOI: 10.1016/j.jempfin.2018.02.004
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    More about this item

    Keywords

    Abnormal returns; Long-run event study; Standardized returns; IPOs; SEOs;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G1 - Financial Economics - - General Financial Markets

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