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Nonparametric tests for event studies under cross-sectional dependence

Listed author(s):
  • Matteo Pelagatti

We propose three nonparametric tests for the null of no eventinduced shifts in the distribution of stock returns. One test is the natural extension of the popular Corrado rank test to the case of crosssectionally dependent returns, while the other two are based on new ideas. Unfortunately only for one of these tests a solid theory for approximating the distribution of the statistic can be derived, but some simulation experiments confirm that normality is a good approximation also for the other two. The new tests are compared to a widely used parametric test (Patell) through simulation experiments and are shown to compare favourably in terms of power. Simulation results are based on bootstrapping daily stock returns from the S&P100 and NASDAQ indexes.

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File URL: http://dems.unimib.it/repec/pdf/mibwpaper244.pdf
File Function: First version, 2013
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 244.

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Length: 20
Date of creation: May 2013
Date of revision: May 2013
Handle: RePEc:mib:wpaper:244
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  1. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
  2. Kolari, James W. & Pynnonen, Seppo, 2011. "Nonparametric rank tests for event studies," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 953-971.
  3. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  4. Jan Bartholdy & Dennis Olson & Paula Peare, 2007. "Conducting Event Studies on a Small Stock Exchange," The European Journal of Finance, Taylor & Francis Journals, vol. 13(3), pages 227-252.
  5. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
  6. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
  7. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
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