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Single-firm inference in event studies via the permutation test


Nguyen, Phuong Anh; Wolf, Michael (2023). Single-firm inference in event studies via the permutation test. Working paper series / Department of Economics 425, University of Zurich.

Abstract

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return (AR) and cumulative abnormal return (CAR), more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

Abstract

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return (AR) and cumulative abnormal return (CAR), more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C12, G14
Uncontrolled Keywords:Cumulative abnormal return, event study, permutation test
Scope:Discipline-based scholarship (basic research)
Language:English
Date:November 2023
Deposited On:31 Jan 2023 11:10
Last Modified:23 Nov 2023 14:54
Series Name:Working paper series / Department of Economics
Number of Pages:18
ISSN:1664-7041
Additional Information:Revised version ; Former title: A note on testing AR and CAR for event studies
OA Status:Green
Related URLs:https://www.econ.uzh.ch/en/research/workingpapers.html
  • Content: Updated Version
  • Description: Revised version November 2023