Event Study Models and Applications
Lecture 2
March 5, 2016
Event Study Analysis
•Definition: An event study attempts to measure the valuation
effects of a corporate event, such as a merger or earnings
announcement, by examining the response of the stock price空调控制板
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around the announcement of the event.
•One underlying assumption is that the market processes
information about the event in an efficient and unbiased manner.
•Thus, we should be able to see the effect of the event on prices.
0+t -t
Announcement Date Stock
Price Efficient reaction
Overreaction
433m天线Underreaction
Prices around Announcement Date under EMH
•The event that affects a firm's valuation may be:
1) within the firm's control, such as the event of the announcement of
a stock split.
2) outside the firm's control, such as a macroeconomic announcement
that will affect the firm's future operations in some way.
•Various events have been examined:
–mergers and acquisitions
–earnings announcements
–issues of new debt and equity
–announcements of macroeconomic variables
–IPO’s
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–dividend announcements.
•Technique mainly used in corporate finance (not economics).•Simple on the surface, but there are a lot of issues.
•Long history in finance:
触控开关•First paper that applies event-studies, as we know them today: Fama, Fisher, Jensen, and Roll (1969) for stock splits.
•Today, we find thousands of papers using event-study methods.电工工具袋
