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Single-firm inference in event studies via the permutation test


Nguyen, Phuong Anh; Wolf, Michael (2024). Single-firm inference in event studies via the permutation test. Empirical Economics, 66(6):2435-2450.

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 and cumulative abnormal return, 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 and cumulative abnormal return, 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:Journal Article, not_refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Physical Sciences > Statistics and Probability
Physical Sciences > Mathematics (miscellaneous)
Social Sciences & Humanities > Social Sciences (miscellaneous)
Social Sciences & Humanities > Economics and Econometrics
Uncontrolled Keywords:Economics and econometrics, social sciences (miscellaneous), mathematics (miscellaneous), statistics and probability, cumulative abnormal return, event study, permutation test
Scope:Discipline-based scholarship (basic research)
Language:English
Date:1 June 2024
Deposited On:30 Jan 2024 12:09
Last Modified:30 Jun 2024 01:38
Publisher:Springer
ISSN:0377-7332
OA Status:Hybrid
Publisher DOI:https://doi.org/10.1007/s00181-023-02530-7
Related URLs:https://www.zora.uzh.ch/229116
Other Identification Number:merlin-id:24308
Project Information:
  • : FunderUniversity of Zurich
  • : Grant ID
  • : Project Title
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)