Finance professionals now routinely use sophisticated statistical techniques in portfolio management, proprietary trading, risk management, financial consulting, and. The econometrics of financial markets john y campbell. Campbell, lo and mackinlay 1997 outline steps for the typical event study. Essays on highskilled migration rutgers university. The major difference between the books is that cuthbertson focuses exclusively on asset pricing in the stock, bond, and foreign exchange markets, whereas campbell, lo, and mackinlay henceforth clm consider empirical applications throughout the field of finance, including corporate finance, derivatives markets, and market microstructure. Campbell j, lo a, mackinlay a 1997 the econometrics of. Armitage, seth event study methods and evidence on their performance, journal of economic surveys, vol 8, no 4, 1995, pages 2552. Campbell jy aw lo and ac mackinlay 1997 the econometrics. The econometrics of financial markets princeton university. In particular, we present the conventional individual and multiple vr tests as well as their improved modi. Event study methodology was used to examine the relationship between clinical research events and changes in stock returns.
Reviews of the most pertinent methodological issues and advances may be found in campbell, lo, and mackinlay 1997, mackinlay 1997, and. Our aim here is only to give brief overview to recap the main features, and we refer to the above papers for a. Nonparametric rank tests for event studies james w. Campbell jy, lo aw, mackinlay ca, adamek p, viceira lm. However, over the last two decades, most event studies published in management journals have analyzed corporate announcements in a single country, limiting academic attention to the event studies that simultaneously analyze firms in mul tiple countries multicountry event studies. In efficient markets where prices reflect all publicly available information and expected cash flows, any new valuerelevant information that impacts investors assessment of future cash flows will. The past twenty years have seen an extraordinary growth in the use of quantitative methods in financial markets. Our event studies examine the change in the spreads on various types of assetbacked securities relative to changes in broader market indexes in the few days or one week surrounding a public announcement about the talf program.
In event study analyses of abnormal returns on a single day, corrados. Assumption 1 stock returns r it are weak white noise continuous random variables with er it i for all t varr it. The relation of event studies to tests of market efficiency receives considerable attention. Sawyer, professor in the department of accounting and finance, university of melbourne, australia. Outline of an event study 151 as having seven steps. Conducting event studies with asiapacific stock market data. Campbell j, lo a, mackinlay a 1997 the econometrics of financial markets. Economists are frequently asked to measure the effect of an economic event on the value. Review of quantitative finance and accounting, 112. Then under the null hypothesis hg lo and mackinlay 1988 show that. A guide to using event study methods in multicountry settings. Mackinlay 1997, the econometrics of financial markets clm, new jersey.
Craig mackinlay princeton university press princeton, new jersey. The goal of an event study is to measure the effects of an economic event on the value of firms. Econometrics of financial markets the econometrics of financial markets john y. Science and education publishing, publisher of open access journals in the scientific, technical and medical fields. Chapter 4 eventstudy analysis 149180 chapter 5 the capital asset pricing model 181218 chapter 6 multifactor pricing models 219252. Selected general sources on the event study methodology in alphabetical order by first author include. Campbell, lo, and mackinlay 1997 provide an exce llent exposition of the eventstudy methodology in chapter 4 of their book. Event studies methodology econometrics econ20110 studocu. Using financial market data, an event study measures the impact. In forthcoming theoretical derivations we make the following explicit assumption. The econometrics of financial markets event study tools. Eventstudy analysis economists are frequently asked to measure the effect of an economic event on the value of a firm.
Central to an event study is the ineasureinent of an ab normal stock return. However, the basic design of an event study has changed little since ball and brown 1968 and fama, fisher, jensen, and roll 1969. This chapter explains the econometric methodology of event studies. The specification and power of the sign test in event study hypothesis test using daily stock returns. Steps in the typical event study as we will discuss later, path breaking studies such as that of fama, fisher, jensen and roll 1969 have established a conventional methodology for event studies. T1, t2, where ej is the vector of residuals from estimating the market model for firm j over the estimation period, and l is the number of days in the estimation period. Mcwilliams and siegel 1997 discuss the many uses and abuses of this methodology in the social sciences. In contrast, campbell, lo and mackinlay 1997 argue that in practice the gains from employing multi. Campbell j a lo and a c mackinlay 1997 the econometrics of. The number of published event studies exceeds 500, and the literature continues to grow. Event study testing with crosssectional correlation of. Craig mackinlay princeton university press, 1997 robert f. The relation of event studies to tests of market efficiency receives considerable attention in fama 1991, and in recent summaries of longhorizon tests in. The use of event studies in finance and economics university.
The uses and abuses of event studies, journal of regulatory. These standard references are recommended reading, but predate important advances in our understanding of event study methods, in particular on long horizon methods. Correct application of event studies in securities litigation an event study analyzes the effects of economic events on security prices. More specifically, using the event study methodology developed by campbell, lo, and mackinlay 1997 and mackinlay 1997, we will examine the stock price reactions of listed companies in polluting industries to the upgrading of the sepa to the mep in 2008.
More recently, an excellent chapter in the textbook of campbell, lo, and mackinlay 1997 is a careful and broad outline of key research design issues. The event study is an important research tool in economics and finance. Finance professionals now routinely use sophisticated statistical techniques in portfolio management, proprietary trading, risk management, financial consulting, and securities regulation. Campbell j a lo and a c mackinlay 1997 the econometrics of financial markets from acct 6231 at american university of beirut. Introduction event studies are used to measure the impact of an economic event on firm value.
W hitelaw new york university this book is an ambitious effort by three wellknown and wellrespected scholars to. Correct application of event studies in securities litigation. To do so, we apply the campbell, lo, mackinlay 1997, henceforth clm, formula to estimate a standardized car for each firm. Results from an event study, applied economics, 31, 60918.
Results we identified public announcements for clinical trials of 24 investigational compounds. Craig mackinlay the wharton school, university of pennsylvania thlanks to john can ipbell, briuce gtr udly, andrtiewv lo, and twvo anonymnotus referees for helpful comments andcl discussion. Pdf the econometrics of financial markets semantic scholar. List of tables list of figures preface introduction the predictability of asset returns market microstructure eventstudy analysis the capital asset pricing model multifactor pricing models presentvalue relations intertemporal equilibrium models derivative. Lecture notes on event study analysis jinlung lin this lecture is largely based upon chap 4 of j. Winner of the 1997 award for best professionalscholarly book in economics, association of american publishers. Craig mackinlay journal of economic literature, vol. Event studies in economics and finance journal of economic literature, vol. Even though each step would not be considered in detail here, a. The relation of event studies to tests of market efficiency receives considerable attention in fama 1991, and in recent summaries of longhorizon tests in kothari and warner 1997 and fama 1998. The results support the point of campbell, lo and mackinlay 1997.
Mackinlay 1997 and campbell, lo, and mackinlay 1997 document the origins and breadth of event studies. Event study analysis economists are frequently asked to measure the effect of an economic event on the value of a firm. For the interested reader, the following are some examples of event study surveys. Campbell jy aw lo and ac mackinlay 1997 the econometrics of. Abnormal returns for an event study of the information con. Craig mackinlay the wharton school, university of pennsylvania thanks to john campbell, bruce grundy, andrew lo, and two anonymous referees for helpful comments and discussion. The paper begins with discussion of one possible procedure for conducting an event study in section 2.
Sep 10, 2014 campbell j, lo a, mackinlay a 1997 the econometrics of financial markets. Mackinlay 1997, chapter 4 for an excellent discussion of event study methodology. Section 3 sets up a sample event study which will be used to illus trate the inethodology. Campbell jy aw lo and ac mackinlay 1997 the econometrics of financial markets from eco 201 at ecpi university. Read full text articles or submit your research for publishing. A guide to using event study methods in multicountry. Binder 1989 present a useful overview of event study methodology.
In efficient markets where prices reflect all publicly available information and expected cash flows, any. In this section we introduce the notation and summarize the method. Ad ditional analysis inay be included to dis tinguish between competing explanations. Xxxv march 1997 event studies in economics and finance a. To appraise a firms specific reaction around an event, the abnormal stock price or other abnormal. The use of event studies in finance and economics university of rome at tor vergata fall 2001.