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Does the market model provide a good counterfactual for event studies in finance?

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  • Carlos Castro

Abstract

We provide a common framework that relates traditional event study estimation methods in finance with a modern approach for causal event studies. This framework is called synthetic portfolio and is a particular case of synthetic control methods. We provide a simulation exercise and an empirical application to evaluate the performance of the method. In addition, synthetic control methods provides a reliable framework, for test based on the abnormal returns, that overcomes some difficulties in the traditional test. We conclude that the market model provides a counterfactual as good as a synthetic control.

Suggested Citation

  • Carlos Castro, 2017. "Does the market model provide a good counterfactual for event studies in finance?," Documentos de Trabajo 15894, Universidad del Rosario.
    • Handle: RePEc:col:000092:015894
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    File URL: http://repository.urosario.edu.co/bitstream/handle/10336/14168/dt211.pdf?sequence=4&isAllowed=y
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    Citations

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    Cited by:

    1. Satyam Kumar & Yelleti Vivek & Vadlamani Ravi & Indranil Bose, 2023. "Causal Inference for Banking Finance and Insurance A Survey," Papers 2307.16427, arXiv.org.

    More about this item

    Keywords

    Event studies; synthetic control methods; portfoliooptimization; merger announcements.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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