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Trading Frequency and Event Study Test Specification

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  • Arnold R. Cowan

    (Iowa State University)

  • Anne M.A. Sergeant

    (Iowa State University)

Abstract

We examine the effects of thin trading on the specification of event study tests. Simu-lations of upper and lower tail tests are reported with and without variance increases on the event date across levels of trading volume. The traditional standardized test is mis-specified for thinly traded samples. If return variance is unlikely to increase, then Cor-rado’s rank test provides the best specification and power. With variance increases, the rank test is misspecificed. The Boehmer et al. standardized cross-sectional test is properly specified, but not powerful, for upper-tailed tests. Lower-tailed alternative hy-potheses can best be evaluated using the generalized sign test.

Suggested Citation

  • Arnold R. Cowan & Anne M.A. Sergeant, 1996. "Trading Frequency and Event Study Test Specification," Finance 9610002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9610002
    Note: Type of Document - Word 6.0/7.0; prepared on Windows; to print on PostScript; pages: 37. Forthcoming in Journal of Banking and Finance.
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    References listed on IDEAS

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    More about this item

    Keywords

    event study research methods; trading volume; thin trading; nonparametric tests; Nasdaq;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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