Statistical inference in multiperiod event studies

Karafiath, Imre; Spencer, David E.

doi:10.1007/bf02408396

Cited by 38 publications

(12 citation statements)

References 20 publications

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“…All test statistics for average cumulative abnormal returns reflect the Karatiath and Spencer ( 1991) adjustment for serial correlation in the prediction errors. The test statistics for the average abnormal returns for a single event day are the standard Z test.…”

Section: Methodsmentioning

confidence: 99%

Market response to analyst recommendations in the “dartboard” column: the information and price‐pressure effects

Albert

Smaby

1996

Rev Financ Econ

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The market response to securities selected by analysts featured in the “Dartboard” column of The Wall Street Journal (WSJ) is the subject of this study. Prior studies have reported significantly positive abnormal returns on the WSJ issue date, followed by a partial price reversal, suggesting that the initial response is partially attributable to price pressure. If we use a post‐event instead of a pre‐event estimation period, we find a similar event day response but no significant reversal. Though we are unable to reject the possibility of a price pressure effect, our results are generally consistent with the existence of an information effect. We also detect a differential response to securities recommended by analysts invited back to the contest and those recommended by newcomers, suggesting that the information effect is related to the market following recommendations of potentially superior analysts.

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Section: Methodsmentioning

confidence: 99%

Market response to analyst recommendations in the “dartboard” column: the information and price‐pressure effects

Albert

Smaby

1996

Rev Financ Econ

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“…The sign of Z in equation (6) can be opposite the sign of the mean cumulative prediction error. Further, Karafiath and Spencer (1991) show that the test statistic represented by equation (6) has greater power (i.e., lower type II error) than other well-specified tests.…”

Section: Event Study Modelmentioning

confidence: 96%

Market Reaction to Dividend‐decrease Announcements: Public Utilities vs. Unregulated Industrial Firms

Impson

1997

J of Financial Research

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In this study I compare the common share price reaction to dividenddecrease announcements by public utilities with the share price reaction to dividenddecrease announcements by unregulated firms. Regressing cumulative prediction errors from an event study methodology on firm characteristics, the empirical evidence shows that dividend decreases by public utilities prompt stronger negative market reactions than similar announcements by unregulated firms, even when yield, yield change, firm size, and Tobin's Q differences are considered.I wish to thank Kathleen Carroll, an anonymous reviewer, and Robert Hansen, executive editor of the JFR, for valuable comments and suggestions. 407

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“…The market model is estimated according to a specification proposed by Karafiath and Spencer (1991) 12. Typical pre-offer and post-close periods were found by measuring the average time between offer-related events and offer announcement dates.…”

Section: Figure 2 Time Line Of Estimation Intervals (In Months) and Omentioning

confidence: 99%

The Impact of Takeover Offer Timing on the Measurement of Australian Bidder Gains: 1976 to 1995

Simmonds

2004

Australian Journal of Management

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This paper demonstrates that the measurement of investor reactions to bidder offers is intimately affected by the endogenous nature of bidding. Bidding activity is not random. Offers are made at times that suit bidders. We show that bidder characteristics before an offer differ markedly from those of other firms and that these differences significantly impact on naïve inferences of shareholder reactions to an offer. When appropriate adjustments are made to properly control for pre-offer characteristics, bidding shareholders are found to enjoy significant wealth increases.-3 -models, is the determination of whether the prior achievements of bidders accurately describe relationships through an event window.Three possible explanations for superior pre-offer performance are considered. The first explanation is that superior pre-offer returns are a consequence of investors in an efficient market bringing forward valuation effects expected to flow from upcoming offers. The capitalisation of these anticipated acquisition benefits may distort the measurement of later reactions during the offer event period. When valuable acquisitions are expected, normal return estimates for the market model could therefore be inflated and ratchet up the offer window response required before significant change is recognised. Furthermore, prior capitalisation of benefits also reduces later reactions in the offer window. Offer reactions are smaller and are assessed against higher standards of normality than is appropriate.Rather than anticipated acquisition benefits, a different possibility is that preoffer price gains are a regular feature of bidder returns that are unrelated to the pending bid. Superior pre-offer returns then represent an opportunity cost to bidding shareholders, which the (0,1) market model fails to recognise. In this case, the (0,1) market model applies a normal-return measure representing average performance to a sector of the market with above-average standards. If bidders maintain the same superior standards through an offer window, the (0,1) market model can detect a positive investor reaction simply because it applies an inadequate measure of normal returns.A final possibility is that observed pre-offer gains are associated with transitory adjustments capitalising significant news events. Whether related to an upcoming offer or not, one-off gains do not reflect ongoing capital costs and can distort market-model estimates of offer window conditions. Under circumstances where pre-offer conditions do not represent ongoing return conditions, it is the market model which is inappropriate.This last possibility is considered the most compelling because bidders decide when to announce offers. Freedom to choose when an offer is announced means bidders can be expected to do so at times that best suit their purposes. 3 According to Kendig (1998), Australian takeovers 4 occur in waves that are related to past economic circumstances. Kendig argues takeover waves are a consequence of greater management hubris and less binding c...

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Statistical inference in multiperiod event studies

Cited by 38 publications

References 20 publications

Market response to analyst recommendations in the “dartboard” column: the information and price‐pressure effects

Market response to analyst recommendations in the “dartboard” column: the information and price‐pressure effects

Market Reaction to Dividend‐decrease Announcements: Public Utilities vs. Unregulated Industrial Firms

The Impact of Takeover Offer Timing on the Measurement of Australian Bidder Gains: 1976 to 1995

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