Abstract
We examine several event-study test statistics that can be used to detect abnormal performance during amultiperiod event window. We demonstrate that one of the most commonly used test statistics does not, under the assumptions made, have the distribution claimed (standard normal), and thus tests using it will be biased. The magnitude of that bias is shown to increase with the length of the event window and can generally be expected to lead to excessive rejection of the null hypothesis. We also compare the relative power of alternative test statistics that are normally distributed and are straightforward to apply.
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Karafiath, I., Spencer, D.E. Statistical inference in multiperiod event studies. Rev Quant Finan Acc 1, 353–371 (1991). https://doi.org/10.1007/BF02408396
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DOI: https://doi.org/10.1007/BF02408396