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Single-firm inference in event studies via the permutation test

Author

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  • Phuong Anh Nguyen

    (International University
    Vietnam National University)

  • Michael Wolf

    (University of Zurich)

Abstract

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return and cumulative abnormal return, more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

Suggested Citation

  • Phuong Anh Nguyen & Michael Wolf, 2024. "Single-firm inference in event studies via the permutation test," Empirical Economics, Springer, vol. 66(6), pages 2435-2450, June.
    • Handle: RePEc:spr:empeco:v:66:y:2024:i:6:d:10.1007_s00181-023-02530-7
    DOI: 10.1007/s00181-023-02530-7
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    References listed on IDEAS

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    1. Jonah B. Gelbach & Eric Helland & Jonathan Klick, 2013. "Valid Inference in Single-Firm, Single-Event Studies," American Law and Economics Review, American Law and Economics Association, vol. 15(2), pages 495-541.
    2. Federico A. Bugni & Jia Li & Qiyuan Li, 2023. "Permutation‐based tests for discontinuities in event studies," Quantitative Economics, Econometric Society, vol. 14(1), pages 37-70, January.
    3. Loipersberger, Florian, 2018. "The effect of supranational banking supervision on the financial sector: Event study evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 91(C), pages 34-48.
    4. Doron Kliger & Gregory Gurevich, 2014. "Event Studies for Financial Research," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-36879-9, May.
    5. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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