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Reservations on the use of event studies to evaluate economic policy

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  • Maryam Beigi
  • Oliver Budzinski

Abstract

Event studies represent an increasingly popular method to evaluate the welfare effects of economic policy decisions. The basic idea is that stock market reactions to the announcement of policy decisions contain superior information about the welfare effects of these decisions. This paper investigates the degree of reliability of event studies as a policy evaluation method by critically reflecting upon two underlying assumptions. Since both the information superiority of financial markets and the determination of economic welfare effects based on abnormal returns consist of considerable interpretation problems, we issue a note of caution: scientists and policy makers should be very reluctant to rely on stock market reactions as a referee on economic policy decisions. Event studies cannot replace thorough theoretical economic analysis. Copyright ZBW and Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Maryam Beigi & Oliver Budzinski, 2013. "Reservations on the use of event studies to evaluate economic policy," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 48(3), pages 174-179, May.
    • Handle: RePEc:spr:intere:v:48:y:2013:i:3:p:174-179
    DOI: 10.1007/s10272-013-0459-6
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    Cited by:

    1. Oliver Budzinski & Jürgen-Peter Kretschmer, 2016. "Implications of Unprofitable Horizontal Mergers: A Positive External Effect Does Not Suffice To Clear A Merger!," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 10(1), March.
    2. Budzinski, Oliver & Kretschmer, Jürgen-Peter, 2015. "Unprofitable horizontal mergers, external effects, and welfare," Ilmenau Economics Discussion Papers 96, Ilmenau University of Technology, Institute of Economics.
    3. Nabil El Majdoub, 2021. "Market Reactions Towards The Announcement Of Sukuk Issuance: Evidence From Gulf Markets," Post-Print hal-04175214, HAL.

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