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Improving Tests of Abnormal Returns by Bootstrapping the Multivariate Regression Model with Event Parameters

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  • Scott E. Hein

Abstract

Parametric dummy variable-based tests for event studies using multivariate regression are not robust to nonnormality of the residual, even for arbitrarily large sample sizes. Bootstrap alternatives are described, investigated, and compared for cases where there are nonnormalities, and cross-sectional and time-series dependencies. Independent bootstrapping of residual vectors from the multivariate regression model controls type I error rates in the presence of cross-sectional correlation, and surprisingly, even in the presence of time-series dependence structures. The proposed methods not only improve upon parametric methods, but also allow development of new and powerful event study tests for which there is no parametric counterpart. Copyright 2004, Oxford University Press.

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  • Scott E. Hein, 2004. "Improving Tests of Abnormal Returns by Bootstrapping the Multivariate Regression Model with Event Parameters," Journal of Financial Econometrics, Oxford University Press, vol. 2(3), pages 451-471.
    • Handle: RePEc:oup:jfinec:v:2:y:2004:i:3:p:451-471
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbh018
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    Cited by:

    1. Beltratti, Andrea & Bortolotti, Bernardo & Caccavaio, Marianna, 2016. "Stock market efficiency in China: Evidence from the split-share reform," The Quarterly Review of Economics and Finance, Elsevier, vol. 60(C), pages 125-137.
    2. Pavel Dovbnya, 2020. "Announcements of Sanctions and the Russian Equity Market: An Event Study Approach," Russian Journal of Money and Finance, Bank of Russia, vol. 79(1), pages 74-92, March.
    3. Deitz, George D. & Evans, Robert D. & Hansen, John D., 2013. "Sponsorship and shareholder value: A re-examination and extension," Journal of Business Research, Elsevier, vol. 66(9), pages 1427-1435.
    4. Zhang, Jing Hua & Tam, Kwo Ping & Zhou, Nan, 2016. "Do smoking bans always hurt the gaming industry? Differentiated impacts on the market value of casino firms in Macao," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-32.
    5. Michael Cichello & Douglas Lamdin, 2006. "Event Studies and the Analysis of Antitrust," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 229-245.
    6. Dongil Daniel Keum, 2023. "Managerial political power and the reallocation of resources in the internal capital market," Strategic Management Journal, Wiley Blackwell, vol. 44(2), pages 369-414, February.
    7. Igor Goncharov & Vasso Ioannidou & Martin C. Schmalz, 2020. "(Why) do central banks care about their profits?," ECONtribute Discussion Papers Series 018, University of Bonn and University of Cologne, Germany.
    8. Saravana Jaikumar & Viswanath Pingali & Vineet Virmani, 2019. "Shareholders’ reaction to ethical image of sports teams: an event study in the Indian Premier League," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 46(4), pages 283-300, December.
    9. Gungor, Sermin & Luger, Richard, 2015. "Bootstrap Tests Of Mean-Variance Efficiency With Multiple Portfolio Groupings," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(1-2), pages 35-65, Mars-Juin.
    10. Zhang, Jing Hua & Tam, Kwo Ping & Zhou, Nan, 2016. "Do smoking bans always hurt the gaming industry? Differentiated impacts on the market value of casino firms in Macao (China)," Economics Discussion Papers 2016-21, Kiel Institute for the World Economy (IfW Kiel).
    11. Tomislav Globan & Tihana Skrinjaric, 2020. "Penny wise and pound foolish: capital gains tax and trading volume on the Zagreb Stock Exchange," Public Sector Economics, Institute of Public Finance, vol. 44(3), pages 299-329.
    12. Huang, Roger D. & Li, Hang, 2009. "Does the market dole out collective punishment? An empirical analysis of industry, geography, and Arthur Andersen's reputation," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1255-1265, July.
    13. Alexis Cellier & Pierre Chollet & Souad Lajili Jarjir, 2013. "New empirical evidence on market reactions to changes in Socially Responsible Investment indexes," Post-Print hal-01367120, HAL.
    14. Aristeidis Samitas & Dimitris Kenourgios & Peter Zounis, 2008. "Athens' Olympic Games 2004 impact on sponsors' stock returns," Applied Financial Economics, Taylor & Francis Journals, vol. 18(19), pages 1569-1580.
    15. Christopher S. Armstrong & Mary E. Barth & Alan D. Jagolinzer & Edward J. Riedl, 2008. "Market Reaction to the Adoption of IFRS in Europe," Harvard Business School Working Papers 09-032, Harvard Business School.
    16. Jaikumar, Saravana & Pingali, Viswanath & Virmani, Vineet, 2015. "Are Investors Ethics Agnostic?," IIMA Working Papers WP2015-03-12, Indian Institute of Management Ahmedabad, Research and Publication Department.

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