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Topic Title: cumulative abnormal returns in event study
Created On Mon Mar 01, 10 06:18 AM
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yipyy
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Mon Mar 01, 10 06:18 AM
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Is it a must to calculate test statistics for cumulative abnormal returns in event study? If yes, how to do it by using Eviews?
 
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csa
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Tue Mar 02, 10 05:05 AM
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Yes, because you don't know whether the cumulative abnormal return is significantly different from zero or not. For example, if you are calculating a two-day window for a certain event and one day was positive and the other day was negative, then the resulting CAR could be statistically insignificant, statistically significant and positive, or statistically significant and negative. Another example would be if you are looking at a two-day event window and the days are individually positive (negative) but not significant but the CAR could be positive (negative) and significant.

I don't know if there is a function in E-views to do this. But, you can read the reply I posted under your thread titled "event study" for calculating t-statistics. Note that there is no single way to calculate t-statistics for event studies, so you may find different methods from different sources. In practice, the resulting t-statistics aren't too different from one another.
 
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yipyy
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Tue Mar 02, 10 05:26 AM
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Thanks CSA.

Another question.

For the CAARs. If I use 31 days event window (day -15 to day +15, where day 0 is the event date), the way that I get the average CAAR for day -5 to day +5 , for example , should be divided by 11 ( day -5 to day +5)or 31( total days in the event window)?





Edited: Tue Mar 02, 10 at 05:33 AM by yipyy
 
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csa
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Wed Mar 03, 10 04:09 AM
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Why would you want to get the average CAR over the 11 day window? Shouldn't you be cumulating the CARs over the event window?

Typically, you would do the following. For each company, you would cumulate the abnormal returns during the event window (whether it is 31 days or 11 days). Then, the cumulative average abnormal return is averaging the event window CARs across the firms in your sample.
 
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