Tests for Abnormal Returns in the Presence of an Event-Induced Increase in the Cross Sectional Correlation

Research output: Chapter in Book/Report/Conference proceedingConference contributionScientific

Abstract

Standard tests for abnormal returns are invalid if the abnormal returns are cross sectionally correlated. We model the cross sectional correlation in the abnormal returns by a spatial autoregressive (SAR) model. The SAR model estimates the cross sectional correlation in the abnormal returns from the event day, or event period. Tests which are robust to an event-induced increase in the volatility and cross sectional correlation of the abnormal returns are proposed. Empirical applications to US stock returns around Bear Stearns' collapse and Lehman Brothers' bankruptcy in 2008 are provided as illustrations.
Original languageEnglish
Title of host publication68th European Meeting of the Econometric Society
Number of pages38
PublisherEEA-ESEM - European Economic Association & Econometric Society
Publication date25.08.2014
Publication statusPublished - 25.08.2014
MoE publication typeB3 Article in conference proceedings
Event68th European Meeting of the Econometric Society (ESEM) - Toulouse, Toulouse, France
Duration: 25.08.201429.08.2014
Conference number: 68

Keywords

  • 511 Economics
  • Abnormal return
  • Cross sectional correlation
  • Event study
  • Spatial autoregressive model
  • KOTA2014

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