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Intereconomics

, Volume 48, Issue 3, pp 174–179 | Cite as

Reservations on the use of event studies to evaluate economic policy

  • Maryam H. A. Beigi
  • Oliver Budzinski
Event Studies

Abstract

Event studies represent an increasingly popular method to evaluate the welfare effects of economic policy decisions. The basic idea is that stock market reactions to the announcement of policy decisions contain superior information about the welfare effects of these decisions. This paper investigates the degree of reliability of event studies as a policy evaluation method by critically reflecting upon two underlying assumptions. Since both the information superiority of financial markets and the determination of economic welfare effects based on abnormal returns consist of considerable interpretation problems, we issue a note of caution: scientists and policy makers should be very reluctant to rely on stock market reactions as a referee on economic policy decisions. Event studies cannot replace thorough theoretical economic analysis.

Keywords

Stock Market Abnormal Return Event Study Welfare Effect Horizontal Merger 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© ZBW and Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Maryam H. A. Beigi
    • 1
  • Oliver Budzinski
    • 1
  1. 1.Ilmenau University of TechnologyIlmenauGermany

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