On the use of event studies to evaluate economic policy decisions: A note of caution
Event studies represent an increasingly popular method to evaluate (future) welfare effects of economic policy decisions. The basic idea is to hire the stock market as a referee, i.e. that stock market reactions to the announcement of policy decision are interpreted to contain superior information about the (future) welfare effects of these decisions. This paper investigates the degree of reliability of event studies as a policy programs evaluation method by critically reflecting upon two underlying assumptions. Since both the information superiority and efficiency of financial markets and, in particular, the conclusion from abnormal returns to (future) economic welfare effects consist of considerable interpretation problems, we issue a note of caution: scientists and policymakers should be very reluctant to rely on stock market reactions as a referee on economic policy decisions. Event studies cannot replace thorough theory-driven economic analysis.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 0 36 77 / 69 - 40 30
Fax: (0049) (0)3677 69 4200
Web page: http://www.tu-ilmenau.de/vw/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Shiller, 2002.
"From Efficient Market Theory to Behavioral Finance,"
Cowles Foundation Discussion Papers
1385, Cowles Foundation for Research in Economics, Yale University.
- Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
- Damien Neven & Hans Zenger, 2008. "Ex Post Evaluation of Enforcement: A Principal-Agent Perspective," De Economist, Springer, vol. 156(4), pages 477-490, December.
- Dnes, Antony W, et al, 1998. "The Regulation of the United Kingdom Electricity Industry: An Event Study of Price-Capping Measures," Journal of Regulatory Economics, Springer, vol. 13(3), pages 207-25, May.
- Kutan, Ali M. & Muradoglu, Gulnur & Sudjana, Brasukra G., 2012. "IMF programs, financial and real sector performance, and the Asian crisis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 164-182.
- Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2006.
"How Effective is European Merger Control?,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
153, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How effective is European merger control?," DICE Discussion Papers 15, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
- Tomaso Duso & Klaus Gugler & Burçin Yurtoglu, 2006. "How Effective is European Merger Control?," CIG Working Papers SP II 2006-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Duso, Thomas & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How Effective is European Merger Control?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 354, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Charles J. Corrado, 2011. "Event studies: A methodology review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(1), pages 207-234, 03.
- Hopkins, Yvette S. & Connor, John M., 1992. "A Re-Examination Of Event Studies Applied To Challenged Horizontal Mergers," Working Papers 116105, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
- Budzinski, Oliver, 2012. "Empirische Ex-Post Evaluation von wettbewerbspolitischen Entscheidungen: Methodische Anmerkungen," Ilmenau Economics Discussion Papers 69, Ilmenau University of Technology, Institute of Economics.
- Kara M. Reynolds, 2006.
"Anticipated versus Realized Benefits: Can Event Studies be Used to Predict the Impact of New Regulations?,"
2006-02, American University, Department of Economics.
- Kara M. Reynolds, 2005. "Anticipated versus Realized Benefits: Can Event Studies Be Used To Predict the Impact of New Regulations?," International Trade 0512005, EconWPA.
- Moser, Christoph & Rose, Andrew K., 2014.
"Who benefits from regional trade agreements? The view from the stock market,"
European Economic Review,
Elsevier, vol. 68(C), pages 31-47.
- Moser, Christoph & Rose, Andrew K, 2011. "Who Benefits from Regional Trade Agreements? The View from the Stock Market," CEPR Discussion Papers 8566, C.E.P.R. Discussion Papers.
- Christoph Moser & Andrew K. Rose, 2011. "Who Benefits from Regional Trade Agreements? The View from the Stock Market," NBER Working Papers 17415, National Bureau of Economic Research, Inc.
- Budzinski, Oliver, 2012. "Impact evaluation of merger control decisions," Ilmenau Economics Discussion Papers 75, Ilmenau University of Technology, Institute of Economics.
- Oliver Budzinski, 2011. "Impact Evaluation of Merger Decisions," Working Papers 112/11, University of Southern Denmark, Department of Environmental and Business Economics.
- Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
- Michael Cichello & Douglas Lamdin, 2006. "Event Studies and the Analysis of Antitrust," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 229-245.
When requesting a correction, please mention this item's handle: RePEc:zbw:tuiedp:80. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.